Did you know that consumers who sell their life insurance policies in the life settlement market receive as much as seven times more money than they would have received by surrendering their policies back to the insurance companies1? Seven times!
Often, it’s an option that clients may not even know that they have. In fact, insurers would strongly prefer for an unwanted or unneeded policy to lapse or surrender. Insurers reap the financial benefits of such a decision by merely paying out the cash surrender value (if any), rather than ultimately paying the full death benefit at maturity.
Life Settlements have been in the market for the last 30 years-- and over the last decade have become a well-regulated, mainstream financial solution for seniors with life insurance confronting the unique challenges of retirement, aging and declining health. Life settlements are disconnected from the stock market, and as declines and instability continues-- the life settlement market is a good option for certain clients.
Today, senior aged policy holders are watching the value of their investments and income being hit hard. For those who own a life insurance policy they may decide to surrender or lapse without realizing it could have a much higher, tax-advantaged value for them through a Life Settlement.
What are some reasons clients may want to consider a Life Settlement?
There are many good reasons to discuss Life Settlements with your clients. Six situations stand out:
1. Your client owns a business. A business life policy may no longer be needed. If the business owner retires or sells their business, they may be looking to give up that policy.
2. Your client is re-evaluating their estate plan. Estate planning can change with shifts in the economy or family circumstances, so there may be an estate life policy set up that is no longer needed.
3. Your client has a term policy about to expire or they may be losing conversion privileges. Some life policies are convertible to permanent policies and those policies can be sold. The conversions are also commissionable to you when you complete the conversion.
4. Your client’s policy is no longer affordable. This could be due to the client’s reduced income or more often, it is due to poor policy performance from low interest rates on a permanent policy or due to increasing annual renewable term rates.
5. Your client now has a chronic illnesses or other health problems. While this would typically be a time to keep a life policy, custodial care and medical bills can pile up quickly, and a life settlement can provide needed funds to use for care.
6. Your client is retiring or has retired. Many life policies were meant to replace the lost income of a working wage earner. Those policies may not be needed upon retirement. Rather than get nothing lapsing the policy, clients get additional retirement money!
If a client decides to explore the sale of his policy, then it is advisable to work with a partner who already has a fiduciary standard to act in his best interests: a licensed life settlement broker. The broker represents only the policy owner – and no other party - throughout the sales process to determine the policy’s potential value on the secondary market for life insurance. The broker’s interests and the policy owner’s interests are aligned – each party wants to maximize the sales value of the policy.
UMS can help you determine the best course of action to help your clients when it comes to obtaining a life settlement. We work with brokers who have experience helping you work with your client.
With the best interest fiduciary standard (effective February 1, 2020), agents must act in the “best interest” of consumers when discussing with them a proposed or existing annuity or life insurance policy. Informing them about an option such as a life settlement could aid in documenting that, you, as their agent, have discussed all the possible options. It also helps avoid any possible liability from a client or estate that is damaged financially by not being informed of a life settlement.
Never let a policy lapse before finding out what it is worth! By recognizing likely life settlement situations, you can help your clients to avoid missing out on a life settlement opportunity which could make a meaningful difference in their lives
1 Welcome Funds Survey. BusinessWire. April 2020.