If you assist clients with retirement planning, chances are you’ve never helped one go through a life settlement transaction.
By: Jon B. Mendelsohn
LifeHealthPro, 05 August 2016

If you assist clients with retirement planning, chances are you’ve never helped one go through a life settlement transaction.

At least, that’s according to a 2015 poll by Financial Advisor IQ, which asked the question, “Would you help clients sell their life insurance?” Of respondents, nearly two-thirds (65 percent) said they had never done so, although they’d consider it under the right circumstances.

Despite their potential benefits to seniors with unwanted life insurance policies, life settlements are still underutilized by financial advisors, even when they have their clients’ best interests at heart. And when you consider that your average senior is unaware or, at best, unfamiliar with the fact that they can sell their life insurance, you realize that a lot of money is being left on the table.

On the client’s side, that money may be tied up in an expensive policy that is no longer needed. The policy could be liquidated into a lump sum payment and eliminate further premium obligations. Both the lump sum payment and the money previously spent on premiums could be reallocated to other areas of the plan.

On the advisor’s side, new liquidity yields new planning options. This liquidity also differentiates the advisor from other financial professionals who don’t comprehend the usefulness of uncovering hidden value in unwanted life insurance policies that would normally just be lapsed.

Given these facts, it’s clear that financial advisors who learn the basics of this transaction can benefit not just their clients, but themselves, as well. Here are three reasons why you should begin familiarizing yourself with life settlements.

(1) Statistics prove that a majority of today’s seniors are financially unprepared for what lies ahead.

According to a Bankrate.com survey, 26 percent of respondents between the ages of 50 and 64 have nothing saved for retirement.

Another survey by the Employee Benefit Research Institute and Greenwald and Associates found that 57 percent of workers have less than $25,000 saved. As so many news outlets have reported over the past several years, this is nothing less than a retirement crisis.

In addition to general living costs, many seniors will end up needing to pay for long-term care or costly medical treatments in their later years. If they aren’t able to cover that cost, it could fall on their children or other family members.

In certain circumstances, a life settlement can provide the cash these seniors need. In these cases, liquidating a costly, unnecessary life insurance policy can ease the financial burden on both them and their families.

(2) With the right help, seniors can sell their policies for much more than the surrender value.

If your client is interested in a life settlement and their policy qualifies, he or she stands to earn a much higher dollar amount for their policy than they could get by surrendering it. However, care should be taken in selecting a life settlement firm to represent your client.

A life settlement can yield as much as 8 times the surrender value if a competitive bidding auction is created on behalf of the policy owner. All types of policies can qualify for a life settlement, including term insurance.

Polices with the highest potential for a successful life settlement are policies that were issued standard or preferred several years ago and health conditions have developed since the policy was issued. Advisors should explore all of the traditional policy exit strategies with their client before deciding on a life settlement.

(3) Knowing all the options available to your clients is simply the right thing to do.

The recent DOL fiduciary rule has focused new attention on putting client best interests first. This is nothing new for most planners and fiduciaries, but lack of awareness about life settlements can put advisors at odds against doing the right thing for their client. Everyone, especially seniors, need to know what financial options are available to help them thrive in the latter part of their lives.

Life settlements are one of those options. For people who are facing sudden expenses, such as mounting medical bills or long-term care expenses, the lump sum life settlement can offer significant relief. Making sure that your clients get their life policy appraised for fair market value is an important additional step in the planning process.

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