The future of life settlements is not about offers, commissions, and tactical moves, but rather long-term strategy. For the industry to prosper in the years to come, the entire financial-planning world must learn to look at life settlements as a key component of retirement planning — a strategic tool that fits within the framework of preparing for the “golden years” — and not just a niche product.
How do we do that? It starts with teaching agents how to weave life settlements into the larger retirement tapestry. The transactions must also be clean and easy to perform, and the fees and associated commissions markedly transparent.
Finally, consumers need to understand what happens after the policy sale, so that transactions are seamless and can be easily managed by the investor audience. The entire life settlement ecosystem needs to work together in a way that is currently lacking.
The New Education Curve
This ecosystem transformation begins with agents, financial planners, family office advisers and estate planning attorneys. As they have the most client face time, they constitute the key players.
Understanding that they have the best knowledge of their clients’ needs, the life settlement industry must educate agents and advisers about how life settlements fit into the “big picture.” For the area of life settlements to grow to its true potential, we need to look beyond the tactical approach of merely identifying unneeded or unwanted policies. Of course, this is a main business driver, but it is not a strategy that can be employed by everyone in the retirement market.
In your 50s, know about life settlements.For example, clients in their 50s should be evaluating their life insurance coverage and ensuring that their policy term extends into their 70s, when a life settlement is most likely. A term policy with a conversion rider may be fairly easy to extend, and such policies can be converted to permanent coverage and sold into the life settlement market.
In your 60s, plan for a life settlement. Clients in their 60s should be evaluating their coverage and looking at all possible channels, to keep coverage in force for the next 10 years. Life settlement providers will evaluate clients free of charge, and agents can illustrate the costs and benefits of keeping coverage in force. Is it worthwhile to keep coverage in force for a few more years, if the payoff could be in the six-figure range once the client reaches his or her 70s? Most agents and clients will say “yes,” and the client deserves to know about it. Annual policy valuation may represent the single easiest way to educate clients about life settlements and build a pipeline of future business.
In your 70s, perform a life settlement. Each day, seniors with unneeded or unwanted policies let them lapse; in so doing, they receive nothing in return for years of paying premiums. Clients in their 70s need to be quickly educated about the benefits of life settlements in the very short term. They can receive cash for something they were going to let lapse anyway.
Transparency Remains Key
The debate continues to rage, about whether a client or agent should go directly to a funder or use a broker to shop around. The only clear solution is that both sides need to continue to work in concert. Providers cannot just “blast” the broker network, and brokers cannot ignore the proverbial hand that feeds them.
What matters most is transparency. For the industry to grow and maintain its long-term credibility, life-settlement transactions need to be completed as quickly as possible and with the least amount of hassle to the policy seller. Realistic expectations must be set by brokers and providers alike – and commissions need to be clearly disclosed. The days of commissions that exceed policy payouts need to be far behind us.
After the Sale, and Not to Be Forgotten
If the first 20 years of life settlements have taught us one lesson, it is that these transactions are unlike any other in the financial-planning universe. They are not “set it and forget” transactions. For the industry to gain mainstream acceptance, we as its practitioners need to clearly explain that a life settlement does not end when a client receives his or her settlement check.
The industry’s long-term viability depends on proper tracking and servicing. Although some may find the task “creepy,” the procedures and techniques honed over the last 20 years help make tracking relatively seamless for the policyholder. Agents, brokers, and providers need to embrace the need for consistent tracking – and willing policyholders – because the entire industry suffers when tracking and servicing aren’t performed correctly.
Just as life insurance, annuities, or mutual funds are parts of a retirement strategy, so should life insurance settlements. The industry needs to look beyond the concept of brokering individual policies, and add life settlements to every financial planner’s and retirement expert’s lexicon.
Stephen E. Terrell is president of LifeGuide Partners, LLC, a company that generates current market values for life insurance policies for agents and their senior life insurance clientele. He can be reached at (888) 484-3350 and on Twitter at @Tweet_Stephen.