Broker-dealers, banks, ILIT trustees, insurance carriers, and planners with a fiduciary duty understand that part of protecting clients' best interests means offering all the available options and recommendations to help clients meet their planning goals. When it comes to life insurance, many factors affect whether a policy still meets the original purchase goal. As policy owners age, they outlive their original planning goals, interest rates affect policy performance, and life situations change. Therefore, the need for their life insurance coverage may change too. Sometimes that means exiting a life insurance policy that no longer serves a positive financial purpose.
There is a valuable alternative to lapse or surrender. A life settlement is a buyout of an existing life insurance policy for more than the cash surrender value and less than the death benefit.
Over time, compliance officers have come to recognize that if life settlements are pursued for the right reasons, after a thorough review of all non-forfeiture options and suitability, a life settlement could very well be in clients' best interests. It is a viable exit strategy that should be disclosed in a comprehensive policy review in partnership with a resource that offers a compliance-centric process. However, broker-dealers do not just allow life settlements carte blanche. They put strict procedural guardrails in place to protect the company and their representatives from liability risk.
When you or your client encounter marketing by a life settlement company, they may all sound the same. It is exceedingly difficult for even the most experienced advisors to differentiate between a company representing their client's best interests and one representing the buyers. There are multiple factors compliance officers consider when selecting a life settlement company. However, there are common mistakes to avoid that revolve around ensuring that your clients receive independent and knowledgeable representation that protects their best interests.
Ensuring the life settlement company has a fiduciary duty to your client, the policy owner, is the most critical factor in approving a compliance-centric resource.
There are key elements that compliance officers look for when completing their due diligence in the approval of a life settlement partner.
Although compliance officers are responsible for protecting the best interests of the company they represent, they have historically hesitated to approve life settlements for advisors to offer as an option to clients. Ninety percent of states regulate settlements, alleviating past concerns and helping to integrate this solution into mainstream planning. Broker-dealers do not advertise or promote life settlements, so we encourage advisors to check with their compliance department to ask if they have an approved life settlement resource.
Over the past 20 years, we have undergone numerous lengthy due-diligence processes and assisted in designing compliance-centric workflows for many of the largest nationally recognized broker-dealers. Discover how we're different by design.
Ashar Group is a nationally licensed life settlement firm that acts as a fiduciary to protect 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. Contact us today.
Policy was eating cash flow needed for caregiving costs
Funded long-term care needs and relieved financial stress from her family.
Business was sold, and the policy was no longer needed
Business owner was able to receive additional value above and beyond the sale of the company.
Donated policy to a charity ran out of cash value to pay premiums
Donor was able to create a living legacy and enjoy seeing the gift used while living.
Your client’s life insurance policy may be the most valuable asset they own.
Seniors in retirement often drop their life policies. The reasons are many; the original need may no longer exist, they may need to eliminate expensive premium payments, or they just need some additional liquidity to help with medical costs and retirement needs. There could be a better way...
A life settlement is the sale of an existing life insurance policy for more than the cash surrender value and less than the death benefit.
Five Common Life Settlement Scenarios:
Who has the best chance of qualifying for a life settlement?
Anyone age 65 or older who has developed health issues since their policy was issued and owns a universal life or convertible term insurance policy has a high probability of benefiting from selling their policy. Policies with a death benefit of $250K or more can qualify. Even policies used in estate planning and business protection with death benefits from $2M - $100M can qualify. Younger policy owners with serious chronic illnesses can also explore the life settlement option. There are many scenarios where a client could qualify for a life settlement.
PRACTICE TIP: Never surrender a life insurance policy without first checking for life settlement value!
Ashar Group is a nationally licensed life settlement firm that acts as a fiduciary to protect 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. Contact us today.
Responding to online advertising and generic value calculators can mislead client expectations. Many things in life rarely come about; when this happens, the average person doesn’t have the knowledge to make a good decision. This can be true for financial professionals and consumers alike.
Understanding life settlements is one of those things. Where do advisors and consumers go to find the answers to questions about life settlements? If you Google life settlements, you will come up with 152,000,000 results. Even if you zoom past all the paid ads, you are still left with an abundance of contradictory opinions and information. Consumers are particularly vulnerable when they respond to direct-to-consumer TV commercials and social media ads about life settlements.
If you’re an advisor, who would you listen to, and how would you know if you can trust them to serve the best interests of your clients? Most of these ads come from life settlement lead generation companies and life settlement providers that represent the best interests of buyers wishing to purchase existing life insurance policies at a highly discounted price. It’s a good deal for the buyer but a bad deal for your clients. Furthermore, it’s almost impossible to use Google to determine whether you’re working with a licensed life settlement provider representing the buyer’s best interests or a licensed life settlement broker with a fiduciary duty to represent the best interests of the policy owner selling the policy.
This is precisely why attorneys, CPAs, CFPs, RIAs, and client-centric life insurance professionals do not rely on Google, social media, or television ads to determine who they should trust to help their clients. They use a more comprehensive due diligence process to protect themselves and their clients.
The strategy behind life settlement calculators
Most online life settlement platforms connect policyholders directly or indirectly with licensed providers that represent the best interests of buyers. They aim to lead your client to provide information by completing their life settlement calculator, then give them an arbitrary value and engage them in conversation. This is a problem for your client because the value indicated is, at its best, only a guess. The minimal output from a calculator is rarely accurate, and the potential offer is changed after additional medical, financial, and policy information is obtained. This misleads your client and forces them to lower their expectations. Often a highly discounted offer will be presented to your client based solely on the information provided on the calculator, and the deal can be closed quickly. Too quickly!
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 emphasizing speed, you might suggest they tap the brakes and determine if they are sitting on the wrong side of the negotiation table.
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, and 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 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!
Ashar Group is a nationally licensed life settlement firm that acts as a fiduciary to protect 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. Contact us today.
Ashar Group has created a special checklist for tax season that helps you conduct a new and timely discussion that strengthens your current relationships and opens the door to new ones.
Most tax practitioners are unaware that existing life insurance policies can provide a value significantly higher than the cash surrender value offered by the issuing insurance carrier.
“Almost 85% of term policies fail to pay a death claim; nearly 88% of universal life policies ultimately do not terminate with a death benefit claim. In fact, 74% of term policies and 76% of universal life policies sold to seniors at age 65 never pay a claim.”
Wharton School Study by Daniel Gottlieb and Kent Smetters
What happens to all those policies that were put in place to protect families and businesses? They are lapsed or surrendered. Most of those policies are dropped by senior clients in financial transition. The reasons are many. Their policy may no longer be needed for estate tax planning, they are outliving their coverage, the policy is too expensive to maintain, a business owner is retiring, or they are going through bankruptcy proceedings or divorce proceedings. Often, they simply want to apply any cash they can obtain from the policy and use that cash - and the ongoing premiums they have been paying - to other aspects of their financial plan. They may need extra cash for medical or caregiving expenses, donate money to charity, or simply maintain their standard of living during retirement. Furthermore, many tax advisors and consumers are unaware of the additional value that can be obtained through a life settlement.
What can tax professionals and financial advisors do to help?
It’s simple, all you must do is be in the right place at the right time before your client decides to lapse or surrender an existing life insurance policy. That’s where our Tax Planning Checklist for Existing Life Insurance comes in. Tax season is the perfect time to reach out to your clients and tax professionals and ask them the questions on the tax planning checklist. This creates awareness about options that are available that could have a significant impact on decisions that they make when considering dropping their existing life insurance coverage.
We’ll be at Finseca in D.C.
Please stop by the Ashar Group booth #201 to get access to the Tax Season Checklist and options to co-brand this checklist.
Excerpt from an article in NAEPC Journal of Estate & Tax Planning by Jamie L. Mendelsohn, EVP
Life insurance can be the largest unmanaged asset a client owns, and it is rarely appraised or valued. Policy owners allocate significant liquidity on an ongoing basis, often long after transitioning out of the original need that the policy was put in place to protect. Even after a traditional policy review and exploring historical non-forfeiture options such as a surrender, reducing the death benefit, or 1035 exchange, the client is left feeling as if they are not in an optimal position. Creating awareness and educating policy owners that the life settlement market exists can result in many planning opportunities, as well as mitigating risk and liability for the advisory teams.
Many policy owners have paid into policies for decades and want more than the intrinsic value of ownership when considering exiting it. The opportunity to take advantage of a secondary market, to capitalize on the numerous institutional buyers competing in an auction to deliver more value than other exit strategies, is an important option to discuss with policy owners. Getting clients in the habit of valuing their life insurance, similar to how they appraise other assets, could create additional cash flow for other planning needs.
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.
A direct buyer/provider offer may be fast, but it can leave some of your client’s money on the table, opening the door to liability for the advisor.
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.
The only way to receive an offer that provides fair market value to your client is through a competitive policy auction process that forces providers to compete.
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!
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 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, manage assets, or purchase policies.
Contact us today or try our no-obligation probability calculator.
Unless you’re a finance geek—like all of us here at Ashar—there’s not a whole lot about managing one’s finances that could really be called “fun.” Monitoring investments, keeping track of bills and taxes…for most people, that’s more obligation than choice. (more…)
This post is part of our series for advisors to pass to their clients. Knowing more about your clients’ needs will help you to better serve them. Aging doesn’t have to be scary, and we here at Ashar want to help you provide the resources that policy sellers need to flourish in this chapter of their life.
At Ashar, we may be in the life settlement business, but that doesn’t mean that we think everyone should sell their life insurance. In fact, that’s about as far from the truth as you can get.
Life settlements can be wonderful financial solutions for many people, but only under a set of very specific circumstances. For people looking for financial relief from unaffordable premiums, or those who no longer need their policies because of changes in estate tax law or the death of a spouse, a life settlement can be a great way to generate a new stream of income. The same is true for individuals facing the costs of long term care, or expensive medical procedures for an illness.
If you fit into one of these categories, maybe it’s time to ask your financial advisor to contact us at Ashar, to start discussion your options. But if you don’t, then chances are you should keep your life insurance, if it’s at all possible.
If you caught our “Filling the Bookcase” article from back in June, you know that we at the Ashar Group love a good book — especially if it helps us continue to get better at what we do.
With summer on its way out, we thought it was time to offer up a few more book recommendations to see you through the fall. Below, you’ll find books to help you reason more clearly, raise fiscally responsible kids, and develop your leadership skills. (more…)
This post is part of our series for advisors to pass to their clients. Aging doesn’t have to be scary, and we here at Ashar want to help you provide the resources that policy sellers need to flourish in this chapter of their life.
We all want to know that when our time comes, our family and loved ones will be provided for. After all, that’s the point of buying life insurance: so that when we pass away, our dependents will have some money to fall back on, to help cover any expenses or taxes and maintain their standard of living. (more…)
