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Shattering a myth about life settlements: 5 advisor benefits

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As LifeHealthPro has reported, the vast majority of financial advisors are either unfamiliar with life settlements or are familiar with them but have never recommended them to clients. This lack of awareness has led to false perceptions about life settlements among financial planning professionals.

Let’s address one specific myth that has discouraged some wealth management professionals from bothering to learn more about life settlements: “There’s nothing in it for me to recommend that a client explore the sale of a life insurance policy through a life settlement.” If this is something you’ve assumed to be true, you need to know this is plainly false.

Related: How to rescue seniors from lapsing life insurance policies

A life settlement is a strategy for seniors who owns a life insurance policy they no longer need or can afford. The senior sells the policy to a third-party investor, who provides cash payment in exchange, then takes over the premiums on the policy and collects the death benefit when the insured passes away. On average, policy sellers receive from four to seven times the amount of the policy’s current cash surrender value.

Unfortunately, each year more than $100 billion face value of life insurance lapses by seniors over the age of 65 — mostly from a lack of knowledge that an unneeded or unaffordable policy may be sold. A life settlement is a strategy for helping your client capture some of those benefits, rather than forfeiting them back to the insurance companies.

But in addition to the benefits to clients, financial advisors themselves can also benefit from working with their clients to pursue a life settlement.

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 recommend. This provides a vehicle for financial advisors to advance client portfolios and better serve their financial needs.

Related: Value denied: Why are life insurers preventing life settlements?

Serving as a trusted advisor who presents clients with a full range of supplemental retirement income options will help cement relationships, writes Darwin Bayston. (Photo: Thinkstock)

Related: The benefits of recommending the sale of a client’s life insurance policy

Five other benefits to you from recommending the life settlement option to appropriate clients include the following:

  • Enhanced relationships: You can make yourself a more deeply trusted advisor to your clients by conducting truly holistic financial planning that considers the potential value of all assets in portfolios, including life insurance policies;

  • Commissions: Depending on your state regulations and business agreements you may be entitled to certain referral fees or commissions for completed life settlement transactions;

  • 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;

  • 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; and

  • Build trust with families: Serving as a trusted advisor who presents clients with a full range of supplemental retirement income options will help cement relationships with those individuals and their family members.

A life settlement is an important addition to an advisor’s toolbox of financial planning options. By selling your client’s life insurance policy through a well-regulated “secondary market” to institutional investors, they can benefit from their life insurance today and use that cash for their immediate needs. Life settlements generate liquidity and provide your clients with more cash to put to work in their portfolios.

Darwin Bayston is the president and CEO of the Life Insurance Settlement Association (LISA). Read his complete bio here.


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