Cash sources are drying up

Not all that long ago, I learned about a "new" source of cash. I hadn’t heard of this before.

Life insurance policies on older people can be sold — the buyer pays for the policy and "cashes in" when the insured dies. The price paid to the owner of the policy usually exceeds all the insurance premiums paid to date, and then some. This lump sum payment can be significant. And a new insurance policy,  premiums paid annually, is a small fraction of the lump sum payment received on the old insurance policy.

This is similar to another creative product … reverse mortgages on residential real estate.

With the financial crises upon us, this $12 billion (2007) life settlement business has been hit hard … and older folks attempt to use "life settlements" to carry them through retirement when their other capital resources are dwindling is faltering. The buyers of these policies are finding that their sources of cash (banks and other investors) are having cash flow problems as well. Thus, the funds are drying up, and the number of buyers/investors in this type of asset is shrinking.

Our creativity in creating financial instruments in the last 20 years without adequate substantive backing has caused us problems. Perhaps our creativity will also get us out of the current dilemma. Postponing retirement may not suffice to keep us in our life style; it certainly will be a damper for those who have dreamed of traveling and just relaxing once they reached a certain age. With "that age" being pushed further out, there is likely to be great resenting and disappointment … this can cause illness … and this can exacerbate the aging problems and family cash strains.

Lawyers are finally listening to me when I say that their law practice has value and can be sold … this is one way to raise cash that will assist aging lawyers (Baby Boomers and others) to smooth out the wrinkles in their financial plans caused by recent economic events.


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