Regardless of the ebb and flow of stocks and bonds, there is an asset that continues to show growth in the financial markets: life settlements.
In 2018, the industry posted a 28% increase in policies sold. Face value – the policy’s death benefit – surged 35% in volume, an increase of nearly $1 billion.
Yet, life settlements remain a little-talked-about option for clients looking to increase immediate cash flow.
The benefits of a life settlements can be a lifeline for many people, including:
- Over-insured seniors who would prosper from selling their life insurance policy to help with expenses during retirement.
- Terminally ill patients with mounting medical costs, whether they have traditional insurance or not.
- Others who have health-care needs, like cancer, and choose to pursue natural or holistic treatments not covered by insurance.
- Payments are burdensome, divorce made the policy unwanted, or your children no longer require the protection.
- Use the money to travel or for a personal vacation home.
Instead of letting a life insurance policy lapse or surrendering it, policyholders can capitalize on their investment. In turn, they will receive higher value from the policy on the secondary market.
One significant point to remember is that a life settlement is different from a viatical settlement. With a life settlement, the insured has a longer life expectancy. (Twenty-four (24) months or less is the life expectancy for a viatical agreement.)
Life settlements can put money into motion for those who need it, whether they are a business owner, real estate tycoon, or only Joe Q. Public. A life insurance policy is X – period. The transaction of turning the policy into cash is immediate and straightforward.
It’s also a good practice to make clients aware of financial options. During the annual review of assets with your client, discussing a life insurance policy should be on the to-do list. As a financial expert, clients rely on advisors to have a 360-degree view of their money.
(A benefit of knowing the details of a life insurance policy is that it may help pre-qualify the client before they choose to pursue a life settlement.)
Many seniors are discovering that life insurance policies are now unaffordable or do not meet their needs. As a result, many of these policies are allowed to lapse or surrendered back to the insurance carrier.
Each year, seniors over age 65 allow policies with more than $100 billion of face value to lapse. Usually, they do not know that selling the plan is an option.
So, what’s next? How do you pull the trigger on a life settlement?
First, a policy evaluation determines if a life settlement makes sense. This process typically takes a few weeks. The assessment – resulting in a summary and non-binding illustration – uses information from the policyholder and generally has a quick turnaround.
Because there are tax implications when selling a policy, a financial advisor is a pivotal component of the client’s life settlement process. There are different state laws, and specific consumer disclosures required, the money may be subject to creditors’ claims, and proceeds may adversely affect government benefits and entitlements of the client.
The life settlement industry is well-regulated with institutionally funded companies. LifeGuide Partners can help navigate the life settlement process. Their goal is to take a different look at whether an insurance policy is outdated or no longer needed and help turn that asset into cash for the client.