Asking financial advisors if they would ever advise clients to sell their life insurance policies can draw out some interesting responses.
Some see settlements as the right choice for certain clients.
Milton Vaughn Bauguess, president and CEO, Republic Asset Management Corp., Tallahassee, Fla., recently used a settlement to help a 71-year-old client stay insured.
The client had seen his estate shrink after his real estate holdings slumped in the dismal housing market. The floundering client sought to dump $1 million in permanent life coverage so he wouldn’t have to pay the high premiums, Bauguess says.
Bauguess found that a group of buyers who would buy the client a $400,000 paid-up policy while taking over the $1 million policy and paying the premiums.
But many advisors are unconvinced life settlements are a great product. Among them is Michael Goss, Michael Goss & Assoc., Overland Park, Kan. He says he has not yet seen a case where a client would be well served by selling a policy.
“Most of my clients need their insurance,” says Goss, who specializes in selling life policies to businesses, such as key-person insurance.
Once a client retires from the business, the person will take over paying premiums on the policy rather than sell it, he says.
Robert Cusick, owner of Investment Insight Ltd., Cortlandt Manor, N.Y., says the settlement business is tainted by too many bad actors. Cusick says he has had clients approached by so-called financial advisors asking them to buy life insurance just to turn around and sell it.
The advisors invited seniors to seminars about life settlements, and then followed up with phone calls asking participants in the seminar to buy life insurance, while offering to pay the premiums, he indicates.
In fact, when he checked the names of individuals running the questionable seminars, he says he could find no evidence they were registered to sell life insurance or investments.
“This is criminal behavior,” Cusick observes.