Fiduciaries often hesitate to explore the option of a life settlement with their senior clients, even when both parties stand to benefit. The most common reason is a lack of understanding about how the process works. This piece provides insight, as well as resources for moving forward.
As a fiduciary, you have your clients’ best interests in mind at all times. And if you’re working with clients who are aging, you may feel even more protective. After all, you may find yourself responsible for helping senior clients find ways to cover the rising costs of long-term care or assisted living for themselves or their spouses. What’s more, you’re playing a significant role in the legacies they’ll leave to their families.
Despite your commitment to do right by your clients, you may be hesitant to broach the subject of a life settlement, even when it might be an ideal solution. If our research is any indication, this is because you may not feel qualified to discuss a life settlement, not because you’re not protecting your client’s best interests. Your hesitancy may also be due to a lack of understanding about the worth of your client’s life insurance policy and how to maximize its value.
This is all very understandable since naturally, you want to stay within the scope of your expertise. To make it easier to explore a life settlement and discover how much their policy could be worth, we’ve put together this quick guide.
Life Insurance Policy Valuation Factors
To begin, there are multiple factors that go into determining the value of your client’s life insurance policy:
- The type of policy: Depending upon various factors (such as dividends being paid and the rate of interest), a universal life insurance policy is the most attractive to the secondary market. Next are term policies that are still convertible and survivorship policies with one deceased.
- Age, health and life expectancy of the insured: Being older and having a lower life expectancy will raise the value of a life insurance policy. This is because the likelihood of the policy’s death benefit being paid out increases with age. The same would apply if the policy owner is not as healthy as he or she was when the coverage was originally issued.
- Outstanding policy loans: If your client has taken any loans on their policy, then the value of the policy will most likely be reduced by that amount.
- Face value: The amount of death benefit that the life insurance policy will pay is always a significant factor in determining the value of a policy.
- Cash value: The amount of cash value that has accumulated inside a life insurance policy and the interest rate is another critical factor to consider.
- Premiums: The required premiums and cost of insurance will matter to the buyer of the policy. The buyer of the policy will want to minimally fund the policy to receive the highest return on investment.
How to Get the Best Valuation for Your Client’s Life Insurance Policy
Fiduciaries should always engage a life settlement broker for a life settlement transaction to ensure their clients receive fair market value for their policy. Life settlement brokers, such as Ashar Group, were specifically created to help financial advisors get the highest possible price for their client’s life insurance policy. Life settlement brokers create a competitive bidding environment among licensed institutional buyers. Brokers exercise fiduciary protection on behalf of policyholders who no longer need or want their life insurance.
Here are just a few examples of client success stories that would not have been possible without Ashar Group.
A 79-year-old male retiree needed to better fund his retirement and mounting healthcare needs. His Universal Life policy had a face value of $750,000 and a cash surrender value of $3,800. At Ashar Group, we were able to secure a Life Settlement Value of $175,000.
Additionally, prior to making recommendations to a 79-year-old female client, a trustee wanted to determine the fair market value for her UL policy, so they could document the file accordingly. Her policy had a $2,500,000 face value and a $55,000 cash surrender value. Ashar Group was able to secure a Life Settlement Value of $450,000.
As you come to understand the life settlement process, it will become second nature to discuss this option with your clients. It’s as easy as starting a conversation with, “When was the last time you had your policy appraised?”
For further information on the life settlement process 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 helping 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 each of your client’s specific situations.