Stock market swings are inevitable and actually a sign of a healthy economy. While market dips are often nerve-wracking for everyday investors, many can eventually recover their losses if they hold on and ride the wave back to more prosperous times.
Retirees, however, may not have the luxury of waiting it out. Sudden downturns can cause real damage to their retirement portfolio when they’re forced to pull money out at the wrong time for groceries, utilities, Medicare premiums and more. It’s here that financial advisors play an especially crucial role in protecting their client’s retirement reserves.
Below, we go deeper into how forced withdrawals can be particularly damaging for seniors, and how life settlements can provide downside protection for retirement planning when the market isn’t in your client’s favor.
HOW FORCED WITHDRAWALS DESTROY RETIREMENT PLANS
As an advisor, you spend a great deal of time and energy guiding your clients in building a well-diversified portfolio and withdrawal strategy. However, forced withdrawals during market downturns can ruin even the best-laid retirement plans when seniors must sell shares at discount prices to make ends meet.
To help seniors avoid selling when shares are down, you might suggest they do things like:
- Make use of emergency cash
- Tap into their home equity
- Use their annuity income
- Delay withdrawals
But what about life settlements? Many seniors have life insurance policies they no longer need, want or can afford. Accessing a policy’s value while alive may be the best way retirees can get liquidity and avoid selling investments in a down market.
THE ROLE OF LIFE SETTLEMENTS AS NON-MARKET LIQUIDITY
Retirees typically have their nest egg tied up in illiquid assets like:
- Retirement accounts (IRAs, Roth IRAs, 401(k)s)
- Non-retirement accounts (taxable brokerage accounts)
- Tangible assets (home equity)
A life settlement converts a non-productive asset into cash without touching any of these essential asset classes. Instead of your client being forced to take $30,000 from a depressed portfolio to cover a medical bill, they might be able to get liquidity from a life insurance policy.
Through a life settlement, retirees sell their policy for as much as seven times its surrender value. They receive the cash as a lump sum and only pay taxes on amounts above what they’ve paid into the policy. Unlike home equity loans, there’s no loan to repay, and life settlements don’t put a core asset — their primary residence — at risk of loss.
Moreover, life insurance policies are non-correlated assets and aren’t directlylinked to the market. Policies hold their face value even during economic downturns. Suggesting clients sell them if it makes sense for their situation is how advisors can create non-market liquidity for their clients.
WHEN ADVISORS SHOULD REVIEW A POLICY FOR SETTLEMENT VALUE
It may be a good idea to review life settlements as an option for clients when:
1. Rising Premiums Are Straining the Client’s Cash Flow
Policy costs can increase as adults age. Premiums that were once affordable at 60 may become unaffordable at 75 without pulling from savings.
2. The Policy No Longer Serves Its Purpose
Years ago, people used to buy large life insurance policies to help cover estate taxes after their passing. However, estate tax thresholds have risen from $600,000 in the 1980s to $15 million in 2026. Far fewer families will owe estate taxes under the new threshold.
Families that bought policies to financially protect young children or a spouse may also find that a policy isn’t needed anymore. The kids may be grown and independent, and spouses now receive retirement income.
3. The Client Is Thinking About Surrendering the Policy or Letting It Lapse
It can be discouraging for retirees on fixed incomes to keep paying for a policy they no longer need. Some simply cancel the policy or let it lapse, receiving nothing in return for all the years they paid into the policy. Others surrender the policy for only a fraction of its face value.
4. The Client Needs Cash Now, but Selling Investments Would Hurt Their Retirement Plan
During better times, your client might sell 50 shares in their portfolio for $100 to cover monthly expenses, but now they have to sell 100 shares at $50 just to get the same return. They’ve not only locked in the loss by selling the investments while they’re down, but now own fewer shares — preventing their portfolio from fully recovering with the market.
Instead, they can consider retirement-income stability strategies such as life settlements. Your clients may be able to use their life insurance settlement for retirement cash and leave their investment portfolio alone while it recovers.
For many advisors, life settlements are a practical sequence-of-returns risk advisory strategy to help clients avoid selling during a downturn.
WHY REVIEWING POLICIES IS A FIDUCIARY DUTY
As an advisor, you have a fiduciary duty to act and advise clients in ways that are in their best interest, not just for their investments, but in every part of their financial life.
As part of this fiduciary duty, you must present to retirees all reasonable options for meeting their financial needs, including sources of liquidity that they might otherwise overlook. Your role would also include evaluating whether an existing life insurance policy has settlement value before allowing it to lapse or be surrendered for minimal cash.
LIFE SETTLEMENTS: DEFENSIVE PLANNING, NOT INVESTMENT PRODUCT
Life settlements aren’t meant to replace a client’s investment portfolio, but they can be one of the easiest and most viable ways to keep their long-term plan intact. Selling an unwanted policy for a lump-sum cash payout helps your clients avoid selling in a downturn, reduce unnecessary losses, and give their portfolio a chance to recover at least partially. It’s a simple way to safeguard a retirement plan during uncertain markets and honor the advisor’s duty to act in the client’s best interest.
Life settlement reviews should be included in retirement planning tools for RIAs in 2025 and beyond. By including policy reviews in your process, you’re ensuring no part of the client’s financial picture is overlooked. It keeps your advice aligned with their best interests and builds trust.
Contact Life Settlement Advisors today for a free comprehensive policy review and to see what your client’s policy may be worth.
