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How to spot a life settlement opportunity

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Prospecting for life settlement opportunities is very different from prospecting for life insurance business. A key factor that distinguishes a life settlement from the sale of life insurance is that there is a very limited window of opportunity for a life settlement — the time between the decision to lapse or surrender a policy and when that policy is actually lapsed or surrendered. As a result, producers must always be vigilant for life settlement situations. A missed life settlement opportunity could be very costly to the policy owner and reflect poorly on the producer.

The best candidates for life settlements are insureds age 65 and older that have had a decline in health since the policy was issued. The most likely situations that indicate a policy might be lapsed or surrendered are:

-       A decline in estate value and/or a decrease in estate tax liability;

-       Death of spouse or intended beneficiary;

-       Divorce (past or present);

-       The sale of a business or other illiquid asset;

-      An insured that is retiring or exiting from business with policies that might no longer be needed or affordable for key person, buy-sell, creditor protection, fringe benefit, or executive bonus;

-       Bankruptcy or decline in value of business;

-       Term policies or riders that are about to expire, lose their conversion privilege or become unaffordable when they get out of the guarantee period;

-       Funds needed for retirement, long-term care, or to repay debt; or

-       The policy owner is having a problem paying the premium, which is often the result of financial difficulty or underperformance of the policy.

How do you find out about situations that indicate a possible life settlement opportunity?  The most common sources are:

-       Policy audits and client reviews;

-       Being watchful for term policies and tem riders on insureds over 65 that are still convertible;

-       Estate planning attorneys;

-       Accountants; and

-       Trust officers.

Frequently, however, these excellent sources of leads are overlooked:

-       Divorce attorneys;

-       Bankruptcy attorneys;

-       Business attorneys;

-       Business valuation firms;

-       Property casualty agents; and

-       Human resource professionals.

A life settlement should only be considered when a policy is no longer wanted, needed, or affordable and the decision has already been made to lapse or surrender the contract. When situations arise that indicate a policy may be lapsed or surrendered, you owe it to your client to investigate the option of a life settlement. Remember, it can’t hurt to try — it can only hurt not to!

For more from Robin S. Weinberger and Peter N. Katz, see:

Before You Suggest a Life Settlement

What Does Betty White Know About Life Settlements?

Now’s the Time to Introduce Life Settlements to Accountants