If the topic of life settlements makes you feel like you’re entering uncharted territory, know that you’re not alone. After all, the life settlement business is still relatively new, having first emerged approximately 30 years ago. In the last 10 to 15 years, the practice has grown more inclusive, helping individuals manage and finance life changes of all sorts, not just major health developments. The great news is, you don’t have to be a life insurance expert to discuss life settlements with your clients. We bet you’ll find that the subject naturally fits into the conversations you’re already having.
With any financial affair, it’s essential that all parties involved are on the same page. Learning more about life settlements can help you achieve greater synchrony with clients. We can attest that someone with a collaborative and supportive advisory team is always primed for success.
Let’s discuss the flip side of that scenario: Advisor disintermediation—the process of removing an intermediary from a life settlement transaction—often comes with pitfalls. We explore the complications of disintermediation with life settlements in the following example:
Case Example: A million pounds of pressure
A distraught client reaches out to an attorney. The client has just received a letter from the IRS regarding back taxes from a life settlement transaction completed two years prior.
The attorney learns that this individual also has a terminal illness. Without consulting a CPA or an advisor, the client sold their life insurance policy to a direct buyer for much less than they would have received with an advisor and broker involved to create a competitive bidding environment, which ensures the highest offer to the policy owner. If the client had sought advice from a financial specialist, this unfortunate situation and ensuing complications could have been prevented.
Why policy owners need independent representation for life settlement transactions
When a policy owner goes into a life settlement transaction with representation, fiduciary due diligence becomes an inherent part of the process. As finance expert Paula Boyer Kennedy explains, fiduciary due diligence helps reduce chances of conflict and liability. Ensuring all statements and agreements are up-to-date, as well as compliant, with the law makes for a smooth life settlement transaction.
Having independent representation maintains transparency, which is especially important during the competitive bidding process. Transparency ensures the policy owner’s best interests are met and the highest offer for the life insurance policy is obtained for the seller.
It is also important in life settlements for the right buyers to be matched with the right sellers. Representation makes this process more manageable and less time-consuming. Finding the right buyer is a vital component of the life settlement transaction. Ashar Group has the experience to find sellers the perfect buyer, no matter how unique the circumstances.
Why is this important for advisors?
As an advisor, if you’re not having the life settlement discussion with your clients, they may be susceptible to direct-to-consumer advertising on the subject. Direct buyers do not have fiduciary duty to provide your client with the highest offer possible. This scenario leaves advisors open for liability and reputational risk.
For more information on how the life settlement process works, and whether it’s an option for your client, give us a call or take our 7-question policy value quiz. Our team of experts is dedicated to asking and answering the crucial questions that will help you make informed decisions. Though a life settlement isn’t right for everyone, Ashar Group can be part of the process of determining whether it makes sense for your client’s situation.