He explained that a reverse mortgage is similar to a conventional first-charge mortgage with two crucial differences: it does not have the obligation of monthly payments and it concurrently allows clients to access their home equity without tax impact or otherwise selling off appreciating investment portfolios.
This is of particular significance to advisors offering advanced investment and insurance strategies. With regards to the latter, Cairns said a lot of the long-term experienced insurance professionals they connected with had large books of business gained over 20–30-year careers. Many of their clients began permanent insurance policies in their 30s and 40s but are now entering retirement and facing significant challenges remaining committed to ongoing premium payments.
In addition to this, the underlying benefits in these legacy insurance policies that these agents were offering tended to have more benefits than similar policies that are issued today. In short, they are well worth keeping.
Cairns said: “Essentially, what we can do is provide cash flow to keep the existing book of superior insurance products in force, as opposed to clients either cashing out or lapsing their policy. As much as we would like to see a 70-year-old qualify for a new insurance policy, they don't qualify in quite the same way as they used to when they were in their 30s and 40s.”
With a significant portion of an insurance practice’s work involved in keeping existing clients committed to the original proposition, where is the cash going to come from if clients have retired? Well, those same families may have bought a house back then for around $300,000, only to have “woken up to the pleasant reality” that their home is now worth more than a $1 million, Cairns said.