Often confused with viatical settlements, life settlements are the sale of a life insurance policy by a policy owner for less than the face value but more than the cash surrender value of the policy to a third-party investor. Life settlements were designed to maximize the resources of the policyholder and to empower the policyholder with choices. Unfortunately, studies indicate that agents do not discuss this underutilized tool with clients because a lack of knowledge and understanding.
With more than 75 percent of agents offering a life settlement to less than 20 percent of clients and only
4 percent discussing this option with more than 90 percent of their surrendering clients, the life settlement industry is largely untapped and ripe for agent implementation.
The vast majority of the public has no idea life settlements even exist, and most troubling is those who could benefit most from life settlements are either completely unaware of their existence or are poorly represented, resulting in uninformed decision-making. The upside is 67 percent of agents say they would be happy to discuss a life settlement with any client who met the appropriate qualifications. This is great news for seniors, as they find themselves more unprepared for retirement than ever before, needing extra resources to cover health care costs and basic living essentials.
The life settlement transaction can be streamlined with the aid of a settlement broker. Life settlement brokers serve as go-betweens who bring together policy owners who seek to sell a policy and providers seeking to purchase them. Brokers, in exchange for a fee, will shop a policy
to multiple providers.
Though underutilized in recent years, the life settlement market is primed for growth in 2011, with greater investor interest. While optimism remains high, the life settlement industry faces numerous obstacles on its way to becoming a viable and sustainable market alternative.
Some of the looming challenges include:
- Lack of agent education. Agents want and seek training.
- Understanding the intricacies of state regulations and compliance.
- Consumer knowledge. Only once the industry has complete understanding of the life settlement market will consumers finally have the understanding they need to make wise and informed decisions
While these issues certainly present a challenge, they are not insurmountable. To be recognized as a viable market alternative, the industry needs to emphasize the success stories and shift the focus away from the negative. To get more policies into the marketplace, the industry needs to focus more on the needs of the sellers. Life settlements are a legal right. This is a right that needs to be protected. Policyholders simply need to be informed of secondary market options by agents who have undergone extensive training.
Clark Hogan is a Managing Director at Opulen Capital. Located in Manhattan Beach, California, Opulen Capital is a Life Settlement brokerage focusing on the needs of financially distressed or over-insured life insurance policy holders. Please see http://www.opulencapital.com for more information.