Historical statistics tell us that life insurance lapse rates increase during economic downtimes. With increased inflation and ever-rising premium costs, we would expect that trend to continue well into 2024.
More than 9M policies lapse each year, and only about 3,000 life settlement transactions occur. How many more of those lapsed policies could have qualified for a life settlement – a buyout of existing life insurance for an amount greater than the cash surrender value and less than the death benefit?
From paying for long-term care and retirement planning to increased AUM, your clients can benefit from exchanging unwanted/unneeded/affordable life insurance policies for cash – recouping past premiums paid and eliminating future premium burdens.
As a trusted advisor, you're undoubtedly aware of the financial strain that can arise when life insurance policies no longer align with your client's needs. The cost of waiting can be significant, both in terms of diminishing cash values and escalating premium obligations.
These resources are designed to empower you as a trusted advisor to provide timely and strategic solutions for clients facing dwindling cash values and increased premium burdens.
Early Detection: Encourage clients to assess their life insurance policies early before they consider lapse/surrender, especially if they are experiencing cash value reductions or struggling with rising premiums. Timely evaluations enable you to identify potential life settlement opportunities before the situation worsens.
Education and Awareness: Educate clients about the option of life settlements and make them aware of the potential financial benefits. Many policyholders are not fully informed about the possibilities available to them, and your guidance can be instrumental in helping them make informed decisions.
Collaboration with a Fiduciary to the Policy Owner: Partner with an independent life settlement seller’s representative who employs a policy auction that creates competition and increases the offers to policy owners. Engaging with experienced professionals can help expedite evaluations, negotiations, and the overall settlement process.
Strategic/Comprehensive Planning: Incorporate life settlement considerations into your client's overall financial planning strategies. By proactively addressing the changing dynamics of their life insurance policies, you contribute to more resilient and adaptive financial plans.
Regular Policy Reviews: Conduct regular reviews of your client's life insurance policies to stay ahead of any shifts in their financial landscape. This proactive approach allows you to identify life settlement opportunities as soon as they arise.
Ashar Group is a nationally licensed life settlement firm representing the best interests of policy owners by creating a competitive policy auction to deliver the best value to the seller. Ashar Group does not sell life insurance, management assets, or purchase policies. We are an independent resource for fiduciary advisors and their clients specializing in life insurance valuation for planning purposes.
By: Bill Clark
Moving too fast in life settlements can come with some inherent risk for you and your clients. If your client is involved in a life settlement process that emphasizes speed, then you might suggest that they tap the brakes and determine if they are sitting on the wrong side of the negotiation table. No one likes to be hard closed.
I’m a big fan of the Fast and Furious movies and was saddened by the unexpected passing of Paul Walker in a fatal car accident in Los Angeles. On the home front, we all hold our breath as our teenagers start driving and hope and pray they never become the victim of a car crash. There’s a reason why car insurance companies charge more for inexperienced teenage drivers. Thankfully most of them reach adulthood unscathed.
Emphasizing Speed Over Outcome in Life Settlements is Risky Behavior
Most of our children do not end up flying fighter jets and exhibiting high-risk behavior like Tom Cruise in the Top Gun movies that had the famous line, “I feel the need for speed”. (By the way, Top Gun – Maverick which came out in June of 2022, is a must-see.) When a client is selling their life insurance policy, speed could mean there aren't competing buyers bidding on the policy. If your client fills out a life settlement questionnaire online and receives a quick offer, there could be cause for concern.
Successful life settlements that protect your client’s best interests require a degree of sophistication and information gathering that does not happen overnight. A fast offer is made with minimal underwriting information and is intended to quickly entice your client into settling for an amount that is less than what would be created by forcing competition among buyers. While the offer will be higher than the cash surrender value (CSV), it will be a far lower offer when compared to a fair market value (FMV) offer that is achieved through a life insurance policy auction between buyers. Those fast offers aren’t formal offers and can decrease once all the medical and policy information is reviewed. This could leave your client frustrated and confused. Some financial advisors even get caught up in these fast offers and unknowingly advise their clients to accept the offer without understanding how life settlements really work.
When Providers (Buyers) Compete, You and Your Client Win
There are two sides to any financial negotiation table: the buy-side and the sell-side. In the life settlement market, there are buy-side representatives (licensed providers) who may have one or more buyers they represent. Their goal is to get the best rate of return (lowest offer to your client) for the buyers they represent. They may tell you that they submit to multiple buyers, but they only use the buyers that they represent as a provider. This eliminates higher offers that could have been derived from forcing competition between multiple licensed providers.
A direct buyer/provider offer may be fast, but it is absent of competition and can leave some of your client’s money on the table. It also opens the door to liability for the advisor if stakeholders, such as beneficiaries, ask later if you shared the policy with multiple buyers/providers to create competition or if only one provider/buyer made the offer. A provider will gladly help your client sell their policy directly to the buyer, but they can’t serve two masters. They have a fiduciary duty to the buyer they represent, not your client.
Bottom line: Complex transactions that require sophisticated underwriting and a negotiation process, take time. There are only two licensed entities that sit at the negotiation table. Life Settlement Brokers represent your client’s best interests, Life Settlement Providers represent the buyer’s best interests. Fast life settlements are risky. Slow down on the front end to verify that your client is represented by a nationally licensed life settlement brokerage firm that is experienced in case design and conducts a transparent policy auction between multiple providers, to drive more value to your client. They will be glad you did!
Why is Fiduciary Representation Important?
The only way an advisor can ensure their clients get an accurate valuation of their existing life insurance policy (and the best value if a life settlement option is chosen), is by partnering with a life settlement resource that has a fiduciary duty to protect the best interests of the policy owner/seller.
For even the most knowledgeable fiduciaries and financial professionals, it can be difficult to determine who is representing your client. Here’s some information to help complete your due diligence when selecting a life settlement partner.
Brokers vs. Providers
Licensed life settlement brokers are fiduciaries to the policy owner. Their sole responsibility is to represent the policy owner in the life settlement transaction and obtain the best possible offers based on the client’s situation and needs.
Providers are licensed to represent the investors. The secondary market for life insurance would not exist without providers who are licensed to purchase policies on behalf of institutional investors around the world. Institutional investors come and go as funds become available, and the licensed provider’s responsibility is to get these investors the best deal.
Direct-to-consumer buyers have an obligation to the institutional investors who purchase the existing life insurance policies, and their primary goal is to obtain the highest rate of return for the purchase.
Not All Brokers are Created Equal
Only a broker who does not have an interest in companies purchasing policies can be considered an independent resource acting solely in the best interest of the policy owner.
Any individual who holds a life insurance license in their state can pay a fee and apply to be a life settlement broker in that state. An overwhelming majority of life settlement resources acting as brokers are only licensed in one state. Because national licensing is expensive and time-consuming, these entities sometimes “borrow” licenses from other sources to complete transactions in other states. Some life settlement resources are only lead generation companies – meaning they aren’t licensed to facilitate the transaction at all. They simply gather your clients’ information and sell it to licensed sources.
A nationally licensed life settlement fiduciary plays a vital role in protecting your client’s data, ensuring the best offers from reputable institutional buyers, and keeping track of all compliance and regulatory requirements.
Due Diligence: Selecting the Right Life Settlement Resource
Ashar Group is a nationally licensed life settlement broker that acts as a fiduciary to protect the best interests of policy owners in the life settlement process by creating a competitive auction to deliver the best value to the seller. Ashar Group is an independent seller’s representative and does not sell life insurance, management assets, or purchase policies. Find out how we’re different or contact us today.
Ashar Group has created a virtual knowledge base to provide fiduciaries, financial professionals, and strategic partners the ability to stay current on the life settlement market and educate them on the importance of treating life insurance as an asset.
With our turnkey approach to policy appraisal and the life settlement process, you’ll have confidence that your clients, their families, and their businesses have the representation that serves their best interests.
A life settlement created a major liquidity event allowing Joe and Debbie to afford costly medical expenses and reduce financial stress.
A life settlement is a valuable solution to solve many issues retirees face including funding long-term care, medical expenses, and alleviate future premium payments.
Ashar Group is a licensed life settlement broker that acts as a fiduciary to protect the best interests of policy owners in the life settlement process.
Excerpt from the 55th Annual Heckerling Institute on Estate Planning: Q&A with Larry Brody
Life insurance carriers are raising premiums on universal life products – many by substantial amounts. For a lot of policy owners, these cost of insurance (COI) increases come as a major (and unpleasant) surprise. While certain carriers have been raising rates at a relatively modest rate, others have ratcheted up their premiums by a drastic amount causing the policy to eat through any built-up cash value.
What is the big deal with big data? The overwhelming amount of data now available, and the progressively complicated technology that comes with it, have not only transformed our lives, but also the way industries function and compete. That can mean massive changes for the way advisors interact with their clients.
With over 2.5 quintillion bytes of data created daily, the time has come to figure out how best to collect, process, and analyze this data to better serve clients.