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Don't Be Too Aggressive With Settlements, Agents Advised

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While most new products would likely inspire agents to check their client list for a suitable buyer, players in the life settlement industry say agents should take a more passive stance on getting clients to sell a life policy.

“That’s exactly what agents should not be doing,” said Robin S. Weinberger, a life settlement brokerage specialist with Advanced Planning Services Inc. in Boston. Life settlements, she said, should be viewed as a reactive rather than proactive business in which agents raise the prospect of selling a policy in response to a client expressing willingness to surrender their policy or let their coverage lapse.

Life settlements, according to Weinberger, are an “incredibly unique phenomenon” that can provide a significant opportunity to policyholders, but agents shouldn’t go looking to find settlements. Instead, she said, when a client has a policy he wants to surrender or let lapse, “that’s the time for an agent or broker to step in” and offer to have the policy appraised.

One instance in which an agent could plan ahead to a degree, she noted, is with term policies. When a term policy is coming up and there’s an option to continue it, “that’s the time to call your client,” she said.

Another area in which agents could be more active on life settlement without raising concerns about stranger-originated life insurance, she said, is by speaking with accountants and trust officers. “They’re the ones who are going to know who’s got the big policies that they are going to let lapse or surrender,” she said.

Bob Nelson, vice president and life and estate planning division manager for the Grace/Mayer Insurance Agency in Omaha, Nebraska, is doing just that. Nelson said he initially set up shop with Grace/Mayer “to serve as a resource” for attorneys, accountants and trustees in the area.

“I try to be somebody who law firms and accounting firms can go to” for counsel on life settlements in general and potential transactions, he said.

“I don’t think I would go back into my database and scavenge my list” to find potential life settlement candidates, Nelson said. Rather, he explained, life settlements should be a “tool” that agents can make use of when the situation calls for it.

Actively seeking out potential settlement candidates, according to Weinberger, could blur the line between legitimate life settlement transactions and STOLI transactions. Although the 2 are “very separate and distinct,” Weinberger said STOLI transactions “are giving life settlements a bad name” with regulators and life insurers.

The confusion, she adds, has caused many carriers to frown on life settlements and discourage their agents from participating in such transactions.

Weinberger said she has sat down with insurers to explain exactly how legitimate life settlements work, and has reached agreements with 2 carriers to oversee life settlements involving their policies and provide training to their agents. A major factor in helping carriers understand, she notes, is ensuring that the transactions are as transparent as possible and that compensation is fair to the seller of the policy.

Despite their concerns, however, she said carriers must come to terms with the fact that a secondary market exists for life insurance policies.

“The cat is out of the bag,” she said. “These aren’t going away.”

Nelson echoed those sentiments, commenting that while it is “unfortunate” carriers did not foresee the life settlements market taking shape and factor it into their calculations, they have to acknowledge that such a market is a normal part of the overall economy.

“That’s what a free market is,” he said.

Doug Head, executive director of the Life Settlements Association, said many states require an agent to be in business for a year before conducting a life settlement transaction. He said he did not believe agents should seek out candidates from their client list, but that LISA believes agents have a fiduciary duty to mention settlements as an option when it is appropriate.