5 steps will get financial advisors started
The secondary market for life insurance seems to have gone from upstart to mainstream reality in the blink of an eye. Many financial advisors are still not sure how to handle this development, which has sparked a dramatic reinterpretation of how life insurance is used and managed.
So, what can advisors do to harness the extraordinary potential of this market for their clients?
Here are 5 simple steps to get you started.
1. Know your client’s portfolio. Most advisors can pinpoint the value of their clients’ stocks, bonds and even real estate holdings. Life insurance is often another story.
The rise of the secondary market means that every policy has a market value which, for many clients, will be far greater than the policy’s surrender value. To truly know if a policy is performing up to expectations, it is essential to be aware of what it would bring on the secondary market.
Fortunately, obtaining a valuation is a simple and straightforward process. By simply submitting basic information about the policy and the insured’s health, you can learn what the policy is worth, so that you and your client can make educated financial decisions.
2. Understand your client’s changing needs. Life is a dynamic enterprise. As your clients’ needs evolve, so does the need for life insurance. Perhaps you have a client who is selling a business or retiring? Maybe an insured loan has been paid off. Even a change in health affecting a client’s insurability can alter the overall value of the client’s portfolio significantly. By staying current on your client’s situation, you can identify new financial opportunities as they arise.
3. Know the tools. The secondary market offers a range of financial transactions which, in the hands of skilled advisors, can create tremendous advantages for clients.
For example, one advisor used a life settlement to help a client meet her estate planning goals. Instead of surrendering the policy, the client sold it for $1.8 million over cash surrender value and used the proceeds to establish more efficient coverage.
A newer premium planning tool lets clients finance the premiums of both new and in-force policies for a term of 24, 30, 36 or even 60 months by using the future market value of the policy as collateral. In another case, a strategy involving the use of a paid-up policy eliminated more than $300,000 in annual premiums while maintaining $5 million in coverage.
The result is a compelling strategy for high-net-worth clients, either individuals or trusts, who have a long-term need for insurance but who do not wish to liquidate or leverage their assets.
4. Look for new opportunities. The secondary market has triggered a revolution in the way life insurance is bought, sold and managed. In some cases, helping clients navigate this dynamic landscape may be your most important responsibility. Quite simply, the advisors who consistently find new ways to bring value to clients are the ones who will thrive.
5. Choose the right partner. As the cases above suggest, secondary market transactions can be complex, especially when large policies are involved. An experienced partner who understands life insurance, as well as the secondary market and all its nuances, is far better positioned to make even the most sophisticated transactions happen quickly and seamlessly.
Before selecting a partner, consider these questions. Does the firm have a proven track record in the analysis and assessment of life insurance policies? Are its transactions funded by institutional capital? Does it place restrictions on purchased policies to ensure your client’s privacy? Is it up-to-date on the latest regulatory requirements in your jurisdiction?
In any transaction, the key is to understand the client’s objectives and structure the deal accordingly. Yes, the secondary market provides new options, but it is still the advisor’s judgment and skill that drives the process.
Michael L. Coben is senior vice president of account services at Coventry First, Fort Washington, Pa. He can be reached at [email protected]
By submitting basic information about the policy and the insured’s health, you can learn what the policy is worth
Does the company you are considering:
==Have a good track record at assessing life insurance policies?
==Rely on institutional capital?
==Protect client privacy rights?
==Comply with the latest laws and regulations in your jurisdiction?
Source: Michael L. Coben of Coventry First L.L.C., Fort Washington, Pa.