About Advisor Benefits

In addition to the benefits to clients, advisors themselves can also benefit from working with their clients to pursue a life settlement.

The primary benefit is that life settlements present an opportunity for your clients to liquidate an asset in their portfolios and put that new cash to work for either their cash flow needs or for other investments you may wish to recommend. This provides a vehicle for financial advisors to advance client portfolios and bring more assets under management.

A recent study on life settlements reported that the average life settlement value is 20 percent of the life insurance policy face value.

Compare this value with the average cash surrender value paid out by insurance companies, which amounts to only 10 percent of a life insurance policy’s death benefit. Our research shows that Americans who are aged 65 or older leave approximately $112 billion in benefits on the table each year by lapsing or surrendering their life insurance policies. A life settlement is one option for capturing some of those benefits rather than forfeiting them back to the insurance companies.

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On average, policy sellers receive anywhere from four to seven times the amount of the policy’s current cash surrender value. There are four main components determining the value of a life insurance policy:

1. The age and medical condition of the insured;
2. Type of life insurance policy (e.g., universal life, whole life, term);
3. Amount of the death benefit; and
4. Amount of premiums necessary to keep the policy in force.

Naturally, the largest settlements will be offered for a higher death benefit, a lower premium and a shorter life expectancy, but in every case the amount your client will obtain will be more than the cash surrender value and less than the death benefit on the policy.

Other benefits to you from recommending the life settlement option to appropriate clients include the following:

• Enhanced relationships – you can make yourself a more deeply trusted advisor to your clients by conducting truly holistic financial planning that considers the potential value of all assets in portfolios, including life insurance policies;
• Commissions – depending on your state regulations and business agreements you may be entitled to certain referral fees or commissions for completed life settlement transactions;
• Competitive differentiation – helping your clients turn unwanted or unaffordable life insurance policies into new cash for their portfolios can be a powerful way to differentiate yourself from other advisors;
• Obtain new clients – by recommending a creative and safe financial planning option to existing clients who are able to unlock hidden value in their life insurance policies, you may generate personal referrals to new clients; and
• Build trust with families – serving as a trusted advisor who presents clients with a full range of supplemental retirement income options will help cement relationships with those individuals and their family members.

A life settlement is an important addition to an advisor’s toolbox of financial planning options. By selling your clients’ life insurance policies through a “secondary market” to institutional investors, they can benefit from their life insurance today and use that cash for their immediate needs. Life settlements generate liquidity and provide your clients with more cash to put to work in their portfolios.

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