Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Life Health > Life Insurance > Life Settlements

What every advisor needs to know about life settlements

By Darwin Bayston, CFA

X
Your article was successfully shared with the contacts you provided.

As more Americans ride the retirement wave amidst “The Silver Tsunami” it’s abundantly clear many seniors are financially ill-prepared for what lies ahead. The financial needs to maintain a comfortable life, including the future costs of health care are unknown. Enter their life insurance policy.

Forty million+ seniors over age 65 have life insurance with an approximate face value of $750 billion+. Most of those seniors are not aware their life insurance policy is personal property and is an important part of their total investment assets. A survey of seniors conducted by ICR Custom Market Research found that 55 percent of respondents allowed their life insurance policies to lapse; and further, 82 percent of respondents were not aware that alternatives like a life settlement existed. 

What is it these millions of seniors need? Education! They need an awareness and understanding that options are available for life insurance policies that may no longer be needed or affordable. One of those options is a life settlement, or the sale of the policy to a third party. Those who are not aware surrender the policy back to the issuing life company, known as lapsing the policy.  A study conducted by the Insurance Studies Institute (ISI) found that 90 percent of seniors who lapsed a life insurance policy would have considered a life settlement had they been aware of the possibility.

Who, then, should help these seniors understand the importance and potential value of their life insurance policy? Seniors’ advisors, including life producers, financial planners, eldercare attorneys, CPAs, trustees and industry organizations can all play an important role in awareness and educating seniors.  

The key focus is to “educate, not sell.”  A surprising number of advisors are unaware of a life settlement option. The same study by the ISI found that 49 percent of financial advisors lack knowledge about life settlements and therefore do not recommend to their clients the possibility of selling their life insurance policy. 

Perhaps we should collectively think of education as our responsibility to provide a “social good” to our senior population.  There is much discussion among professional groups about fiduciary responsibility.  While technical, legal and regulatory definitions differ, one guideline may be our own common sense.  A guiding principle might be that all of us who are serving the senior population in some manner of advice and counsel should know as much as we can about all of the investments that make up their portfolio — including their life insurance policy. 

Advisory groups, as well as financial advisors and planners, producers and agents, attorneys, CPAs, and trustees need to challenge ourselves to work together to educate and serve senior consumers.

Just as important, life companies could and should play a role in making their policyholders who are considering lapsing a policy aware about the options available. While life carriers are in the business of generating profits, they should give careful analysis of the minimal impact that policy lapses most likely would have on their financial condition, as compared to the valuable contribution and service they could provide to their senior policyholders. The benefits to joining in the efforts to educate their senior policyholders about all the options available before lapsing a policy should outweigh their primary goal of maximizing profits.   

The more a consumer knows, the more well-equipped they are to make a decision that could positively impact their future. And the more their advisors know, the better they can ensure they take advantage of all options to benefit their future.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.