Is a life insurance settlement right for your client?

The ideal candidate for a settlement will be a retiree who currently possesses a life insurance policy and is looking for a way to get money for it without letting the policy lapse. (Photo: iStock)

Clients have the right to know the in’s and out’s of the settlement process, so it is always important to be upfront and honest with them.

A life settlement is a practical option for clients who:

• • Are terminally ill as they receive an accelerated death benefit
  • The policyholder wants to transfer the ownership as a gift
  • If they desire a life settlement
  • In case of policy reconstruction: the sale of a life insurance policy in exchange for monthly payments made to a long-term care services provider

A great beginning point for your elderly clients is to simply inform them of the life settlement option. Letting them know that this course of action is a great alternative to letting the policy lapse or to surrender it, will give them insight and really give them something to consider. By giving them options, professional advisors aren’t leaning in one direction or another, but instead are simply advising the client of the choices available. When your client realizes that they can obtain an almost instant lump sum for their policy, they will inevitably consider it as a lucrative option for themselves.

A few cons against life insurance settlements should also be considered. Once your client cashes in his or her policy there will be added taxes upon this moneys, in some states as high as 15 percent. In addition, one also needs to be vigilant of fraudulent brokers or brokers who say they are able to secure a certain percentage of the policy’s value back, but do not yet know what the final rate will be from the hedge funds.

Hedge funds lump life settlements into larger portfolios. So engage in this fiscal transaction with caution, making sure the paperwork is up to code as you and your client go through the process.

Although a life settlement isn’t always a viable option for all of your clients, it’s an alternative that should be looked into. Not all who apply will qualify for a life settlement, which is why there are benchmarks that need to be met before a candidate can be approved. The most ideal candidate will be a retiree who is 65 years old or older who currently possesses a life insurance policy and is looking for a way to get money for it without letting their insurance lapse.

See also:

Options are the future of retirement planning

Direct marketing of life settlements: good for consumers?

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