A crisis is in the making. And if something isn’t done soon to circumvent it, then things are likely to turn out badly for producers.
That about sums up the situation for life insurance and financial service professionals on the question of transacting, or even recommending, a life settlement to senior clients who might benefit from one. For whichever course an advisor takes could result in a backlash — from affiliated life insurers, regulators or clients.
A problem that shouldn’t be
That producers should find themselves in 2015 between a rock and hard place on so important an issue — whether a senior client should sell their life insurance on the secondary market to a willing buyer — is deeply troubling. And not only because of lost sales opportunities.
Which, I might add, are potentially substantial. As I note in my feature of the April issue of National Underwriter Life & Health on life settlements, the market is, following a rough patch stemming the 2007-2009 downtown, on the rebound.
Growing by double digits — both in terms of the number and amounts paid for settlements — the space is riding favorable interest rates and a capital infusion from institutions that acquire the policies. Fueling demand, too, is greater savvy among the key players in approaching the transactions, and a desire among investors for more financial instruments that don’t correlate with equity market fluctuations.
Depending on the face’s amount, the commissions for brokers can be eye-popping: $100,000 and up. One producer I interviewed for my feature, Michael Weinberg, is expecting 6 times this amount for a life settlement he’s working on.
But set aside for the moment producer compensation. An unavoidable fact is that many seniors over age 65 who are in ill health and not willing or able to pay premiums on their life insurance should consider a life settlement.
Selling to an outside buyer will frequently yield more money for the client than surrendering the policy for its cash value. A settlement may also be superior to two other common options: allowing a policy to lapse; and using the cash value (assuming a permanent life policy) to buy a paid-up contract with a reduced face amount.