Although life settlements are quickly becoming a more mainstream alternative for both institutional investors and seniors, the majority of seniors who lapse their life insurance policies are not aware that selling their policy on the Secondary Market is an option.
According to a recent survey, out of 604 seniors surveyed, 86 percent did not know about the life settlement option.
Approximately, 90 percent of seniors who lapse their policies and are unaware of the possibility of a life settlement reported that they would have considered that option if they’d known about it; and 79 percent of senior financial advising clients believe their advisors should tell them about the life settlement option.
This provides an interesting contrast to what financial advisors have said in surveys about life settlements. According to a poll by Financial Advisor IQ, 65 percent of financial advisors surveyed said they had never helped a client sell his or her life insurance policy. Additionally, 15 percent said they wouldn’t even consider doing so due to ethical or legal concerns.
So why the disconnect? Part of it, no doubt, comes from the fact that life settlements are still not as widely understood by financial advisors as they should be. Many believe that the market for selling life insurance is poorly regulated; however, that’s no longer the case.
Life settlements and/or viatical settlements are specifically regulated in all but 8 states. If you go through a licensed life settlement broker, you’re further increasing the legal and regulatory protections you can offer your client.
Ashar, for example, is licensed to conduct business in all but three states - Vermont, New Hampshire, and Alaska - and is one of the most compliant and licensed agencies in the industry.
As a financial advisor, how can you use the life settlement option to help your senior clients?
As an advisor, you have a duty to help your clients make the best possible financial decisions. In some cases, that could mean helping a client sell their life insurance policy on the Secondary Market.
Consider this example. You’re advising a widow with three grown children who is facing the possibility of needing to enter an assisted living facility. She has some retirement savings, but not enough to cover the cost of assisted living for more than a year.
She’s also paying high premiums on a universal life policy that she no longer needs, as her children are self-sufficient and contributing to her care financially.
Because she no longer needs her policy, this client is considering surrendering it for its cash value - about $3,800. The money will go toward her long-term care.
However, if you as her advisor let her know that the policy might qualify for a life settlement, you’ve just given her another option that could potentially offer her a much greater value. If the policy qualifies, you can then bring that policy to a licensed life settlement broker like Ashar.
We have access to a large network of institutional investors and we essentially create a bidding war that will ensure your client receives the best possible offer for her policy.
The difference between the Secondary Market value and the cash surrender value can be huge. As you can see in the Case Studies section of our website, one of our actual clients whose policy had a cash value of $3,800 received $175,000 for it through a life settlement. That could cover almost two years of long-term care for our hypothetical widow, greatly relieving the financial burden on her and her family.
If you haven’t begun talking to your senior clients about life settlements, now is the time to start. To learn more about how life settlements work, you can watch our overview video. And to find out if a client’s policy might qualify for this alternative to lapsing a life insurance policy, take our quick policy quiz.