Many life insurance policyholders are unaware of alternatives to allowing their policy to lapse or surrendering it for the cash value, therefore foreclosing the opportunity to receive fair market value for their policy through a life settlement.
In the landmark decision of Grigsby v. Russell in 1911, the U.S. Supreme Court ruled that life insurance is personal property. Meaning, a life insurance policy can be bought and sold like any other form of personal property, such as a house or vehicle. It also means that while a policy owner is living, their life insurance policy holds value right now. If you have senior clients, they don’t have to wait to take advantage of the value of their life insurance policies.
However, many of your clients might not be aware of this. And if situations arise in which your senior clients no longer want, need, or can afford to pay the rising premiums of their life insurance policy, they may choose to lapse or surrender the policy. However, they could receive a much higher value for their policy through a life settlement.
In addition to policyowners, fiduciaries miss an opportunity to serve client best interests by not presenting all the available options – including the life settlement option. While a life settlement is a legal right in all 50 states, not all advisory teams are aware of the possibility. By presenting a unique solution to their client, fiduciaries can bridge the gap between generations one and two, creating more business while mitigating liability and risk.
What Your Clients Should Know: Alternatives to Lapsing or Surrendering a Life Insurance Policy
If your client is seeing an alternative to lapse or surrender or has decided that he or she no longer needs, wants or can afford their life insurance policy, here are the primary options that they should be aware of:
- Sell the policy on the secondary market in a life settlement transaction
- Gift the policy (or the proceeds from a life settlement) to a charity
- Seek an alternative death benefit through a reduction of face amount
- Convert a term policy to permanent coverage, if applicable
- Maintain the policy through loans, using the policy or its cash surrender value as collateral
- Sell a portion as a life settlement and use the payout to fund a retained death benefit amount
What Makes a Life Settlement the Best Option for Your Clients
A life settlement is often the ideal alternative to lapsing or surrendering a life insurance policy because it provides the policy owner with a much greater value than they would otherwise receive. In fact, the difference between the Fair Market Value and the cash surrender value is often significant. Policy owners can secure the highest offer possible by working with a life settlement broker, like Ashar Group, who represents the policy owner in a fiduciary capacity. For example, one of our clients had a policy with a cash value of $3,800. Through our proprietary process, Ashar Group was able to negotiate an offer of $175,000 for his policy.
Due to privacy, legislative and industry concerns, it is imperative to secure the services of an experienced and knowledgeable life settlement broker to handle the case design, presentation, negotiation, and closing process. At Ashar Group, our team is widely considered to be the most skilled and trusted in the industry. The reasons for this are twofold. First, we avoid all conflicts of interest in order to ensure fiduciary protection of policyholders. Second, we create a competitive bidding environment among licensed, institutional buyers to ensure the policyholder receives fair market value.
Surveys show that 90 percent of those who lapsed their policy would have considered selling it if they had been aware of a life settlement. Additionally, 79 percent of those surveyed indicated that their financial advisors should have known and advised them about this option. Ensure that your discovery process includes questions about your client’s life insurance policy. At Ashar Group, we advise our partners to open the conversation with, “When was the last time you had your policy appraised?”
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 situation. We’re life settlement and policy valuation specialists whose experts adhere to the strictest ethical standards, and we invite you and your financial planner to contact us today.