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Life Health > Life Insurance

The benefits of recommending the sale of a client's life insurance policy

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Those of us who have worked with consumers to develop and execute a personal financial plan can attest that there is something truly rewarding about helping a family achieve its financial goals. An advisor’s highest calling is to analyze a client’s personal finances, discuss their objectives and then educate them about the options available in order to accomplish those objectives, while acting in the best interests of the client.

Of course, financial advisors clearly understand and are well-schooled in financial planning itself, so the reality is that advisors need to know how they will personally benefit – either financially or otherwise – from recommending various strategies for their clients. This is an important topic to discuss as it relates to possible choices for clients’ life insurance policies that may no longer be needed or affordable, including possibly selling the policy through a life settlement.

According to a 2014 study by, the vast majority of financial advisors are either unfamiliar with life settlements or are familiar with them but have never recommended them to clients.

At the same time, nearly 50 percent of advisors agreed that clients who plan to let their life insurance policy lapse should consider selling that policy. This disconnect suggests that many advisors are simply unaware of how life settlements work and how they can benefit their clients.

In addition to the benefits to clients, advisors themselves can also benefit from recommending the life settlement option to appropriate candidates.

The primary benefit is that life settlements present an opportunity for your clients to liquidate an asset in their portfolios and put that new cash to work for either their cash flow needs or for other investments you may wish to include in the rebalancing process. This provides a vehicle for financial advisors to advance client portfolios and bring more assets under management.

When they enter into a life settlement, life insurance policy owners realize an average of seven times the amount of the policy’s cash surrender value, based on an analysis of a 2010 survey of the life settlement market by the U.S. Government Accountability Office. Our research shows that Americans who are aged 65 or older leave approximately $112 billion in benefits on the table each year by lapsing or surrendering their life insurance policies. A life settlement is one option for capturing some of those benefits, rather than forfeiting them back to the insurance companies.

There are a variety of additional benefits to financial advisors from recommending the life settlement option to appropriate clients, such as the following:

1. Competitive differentiation – helping your clients turn unwanted or unaffordable life insurance policies into new cash for their portfolios can be a powerful way to differentiate yourself from other advisors.

2. Enhanced relationships – you can become known as a trusted expert in holistic financial planning, an increasingly valued process that considers the potential value of all assets in portfolios, including life insurance policies.

3. Commissions – depending on your state regulations and business agreements you may be entitled to certain referral fees or commissions for completed life settlement transactions.

4. Obtain new clients – by recommending a creative and safe financial planning option to existing clients who are able to unlock hidden value in their life insurance policies, you may generate personal referrals to new clients.

5. Build trust with families – by serving as a trusted advisor who presents clients with a full range of supplemental retirement income options, you can cement relationships with those individuals and their family members.

So how do you know which clients are the best potential candidates for a life settlement? Look for someone who is over the age of 70, or a client with serious health impairments, and has already decided that he or she has a life insurance policy they no longer need, want or can afford.

Then, if a life settlement sounds like it might be a good option for your client, the best way to begin the process is to contact a licensed life settlement professional who is a member of the Life Insurance Settlement Association (LISA) in your state.

A life settlement is an important addition to an advisor’s toolbox of financial planning options. By simply educating an appropriate client about the existence of the life settlement option as an alternative to lapsing or surrendering their unwanted life insurance policy, your client can benefit from their life insurance today and use that cash for their immediate needs or put it to work in their portfolio.

And you can benefit in a variety of short-term and long-term ways by helping them achieve their financial planning objectives.

See also:

Eye on 7 of the most common life settlement situations

How life settlements can be used for charitable purposes


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