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Feature: How does engaging in life settlements benefit agents and advisors?

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For all the talk surrounding the growth of the secondary market for life insurance policies, the question remains: how would engaging in life settlements benefit an agent or advisor? In a recent webinar, W. R. ‘Max’ Carey, founder and chairman of Atlanta-based Corporate Resource Development, said that the potential for profitability depends on how much an agent or advisor is willing to put into the business. The webinar was hosted by National Underwriter, the parent of Settlement Watch.

“Life settlements are an opportunity that should not be overlooked by forward thinking agencies, agents, broker-dealers and brokers,” Carey said. Although many agents and advisors had seen “transient products” wax and wane in the industry in past years, Carey claimed that life settlements are here to stay and that it is a “frightening thought” for any agency to let themselves be passed by. As an example, he pointed to the institutional players getting into the market. “If Goldman Sachs enters a market, you would be very well advised to be close behind,” he said. Among the factors making life settlements appealing for agents and advisors, according to Carey, are the demographics behind the market, with the baby boom set to enter their senior years. And according to statistics, he said, 40% of policies held by seniors are expected not to reach maturity due to lapsing and surrenders. As a result, there is “incredible economic value and human benefit” in life settlements for those policies, Carey said. Those demographics have already begun leading agents and advisors towards the secondary market, noted William Scott Page, president and chief executive officer of The Lifeline Program in Atlanta. A survey conducted in recent years, he noted, found that 18% of agents had been involved in a life settlement. That number, he added, has “now jumped to 35% today,” and that he expects it to keep growing. Overall, he said the industry’s growth has continued unabated, and that it is projected that $50 billion in face value of policies will be sold on the secondary market this year, “and I can confidently say the industry is there.” Page also believes that projections for the industry to continuing growing dramatically are “conservative.” The target market for the industry, he said, is expected to grow over 90% as the population ages over the next 25 years, and current estimates have penetration at only 3%. “We’re at the very tip of a very, very big iceberg,” he said. But despite that growth, both Page and Carey noted that many agents, brokers and advisors are still unaware of settlements, or are hesitant to enter the market. For those willing to make the move, Carey said that “speed to market is a competitive advantage” and that agencies and advisors will benefit from being “early adopters.” Settlements, he said, offer “another reason to speak to your clients” through offers such as a life insurance audit, and can help to increase the pool of referrals to those in the estate planning, and accounting communities.

Conversely, he added, avoiding the secondary market creates “another reason for your competitors to call your customers” and offer services that their advisor does not. By learning about and including settlements among their options, Carrey said, agencies and advisors can help “build a defensive wall” around their most valuable asset–their clients.

For those agents willing to conduct settlements, Page noted three different types of reasoning behind the transactions. These are: a simple “sell and replace” using settlement funds to buy newer and better fitting insurance products; “found money” in which a client can not only purchase a better fitting product, but also pocket the difference in costs; and “term to perm” where term policies are converted to permanent products and sold in a settlement. “This is a very large, untapped portion of the business that is just starting,” Page said.

In many cases, he added, agents can achieve “hero status” by turning policies set to lapse or be surrendered into cash value into higher amounts of money and/or new insurance coverage as well. In addition, he noted that agents can often receive significant commission compensation through life settlement transactions, noting as an example a “triple dip” from a term conversion and life settlement. In addition to the residual commissions the agent will receive for the continued premiums in the policy, Page noted they would also receive commissions for the conversion, and for the life settlement transaction.

Carey said that there is “no smoke behind the numbers” showing the potential profitability of getting into life settlements. It “really is all up the agency” how much they want to invest in, and therefore profit from, such transactions, he said. The webinar, originally broadcast on June 6, 2008, can be accessed free of charge through our archives. Click here to register and gain access


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