What to know so you can confidently discuss selling life insurance with clients.
The rules and regulations of the financial world are strict, and plenty to keep client information confidential and secure. It is understandable that you are very careful about what you discuss with your clients as a financial advisor. If you are going to make suggestions, you want to be sure that you are as knowledgeable as possible on the topic or product you are offering.
Many advisors avoid the topic of life settlements because they do not know enough about them.
Knowledge of the concept is helpful. There is no reason not to educate yourself in order to meet your clients’ needs. A life settlement could significantly improve a client’s financial circumstances. Advisors should not miss out on an opportunity to help their clients because they do not know about life settlements.
The first thing that your client may inquire about is the trustworthiness of the life settlement market. To many people, the idea of selling their life insurance policy is relatively new.
You can reassure them that life settlements are legal transactions and regulated in all states, except Alabama, Michigan, Missouri, New Mexico, South Carolina, South Dakota, and Wyoming. That means that in 48 states, all transactions must be reported, and compensation is regulated. All settlement brokers must be licensed, as well. A settlement is a diligently monitored transaction that is secure for buyers and sellers.
Why You Should Work with a Life Settlement Broker
You do not have to work with a life settlement broker. You can have your client go directly to a provider. A provider does not compare pricing for you; therefore, you have to do the shopping around. A broker is like a one-stop-shop. That is why working with life settlement brokers is preferable. They create competition on a policy in the secondary market to get the most value possible. More so, they are a great source for learning about life settlements, and they provide guidance along the process.
Brokers work with financial advisors regularly. They make great business partners because they have the same fiduciary responsibility to your client as you do.
How Policies Are Appraised
Another reason to work with a life settlement broker is because of their thorough appraisal process. How are policies appraised? This process is intricate as it is dependent on each policy; there is no “one size fits all” method.
First, the policy must qualify for a settlement; the most common is a universal policy because they are the most attractive to buyers. Some term life insurance policies are convertible and then can be sold, as well. The health conditions of the policyholder are also taken into consideration. Life expectancy is a predictor of the death benefit being paid out or not. The value of a policy increases as life expectancy decreases; therefore, deteriorating health is a large factor.
The face value and cash value are then determined. The face value is the amount of the death benefit that would be paid if the insured passed. The cash value is the amount accumulated inside a life insurance policy, including the interest rate.
Finally, the premiums are taken into consideration. The required premiums and cost of life insurance are what is most important to a buyer. The buyer will resume the premium payments on the policy, and therefore, they want to receive the highest return on investment based on what they pay for it.
Financial Advisors Can Provide a Solution
Let’s say you have a client with a consistent increase in healthcare costs and a deteriorating health condition. Paying the medical bills and prescriptions is getting complicated; the source for cash is drying up.
The client needs options, so you suggest a life settlement. You decide to work with a broker from Life Insurnace Settlement Inc who gets you all the information you need and gets the client’s policy appraised. He informs you that the policy’s face value is nearly 1 million dollars worth, but the surrender value is only worth less than 0.01% of the face value.
It is not enough to help the client with their expenses. The broker bids the policy on the market and manages to get the policy sold for more than 3% of the policy’s face value at $320,000—a significant difference in a payout. The client is about to pay outstanding medical bills and save some for future needs.
This is a very realistic scenario. Policyholders often find themselves in this situation, and financial advisors are there to provide a solution. A life settlement provides a sizeable lump sum of cash that many seniors find themselves in need of well into their retirement years. Whether it is cash that is used for expenses or new purchases, advisors can safely suggest selling life insurance to their clients.