How Advisors Can Safely Leverage Life Settlements to Help their Clients

In the past, advisors have been hesitant to recommend life settlement options for a variety of reasons, but times have changed! The settlement market has developed and improved over the years to sustain profitability. Heavy regulations have also been implemented for a more trustworthy and reliable market. It is a form of buying and selling that has been made mainstream.

Why Advisors Should Recommend A Life Settlement

Educating your clients on what a life settlement is, is first and foremost. A life settlement is the sale of a policy that is very beneficial to the policyholder. This is an alternative option to lapsing or surrendering a life insurance policy.

Suppose your client is considering surrendering their policy. In that case, they are settling for a certain amount of money from the provider that does not necessarily take the policy’s actual value.

A life settlement requires an appraisal of the policy, so the policyholder knows what it is worth. Clients are more likely to get more money out of their policy from a life settlement as opposed to surrendering because it is bid on the secondary market based on the appraisal. 

You can help your client get as much as 60% of the policy’s value by suggesting a life settlement. The cash from selling a life insurance policy can be used for any financial situation you need to help your client with, such as financial downturn, medical & living expenses, and unexpected expenses.

A life settlement is a financial resource and a way for you to provide guidance. As you assist a client with the settlement process, you build trust in the relationship and expand on your services to them. This could mean more reward and recognition for you and your practice.

Offering this assistance is an expansion of your services and portfolio improvement. 

Life Settlement Market Regulations

The only drawback that advisors have is skepticism of the market, but that has changed. 

The life settlement industry has become a trusted and transparent place for transactions, and it has been around for decades. Life insurance carriers and policyholders have been protected by the Life Settlements Model Act adopted by the National Conference of Insurance Legislators since the year 2000.

People typically associated life settlements with viatical settlements, which tainted life insurance sales, but shortly after the Life Settlements Model Act, life settlements outnumbered viatical settlement sales.

In 2004, the Viatical and Settlement Association of America changed its name to the Life Insurance Settlement Association(LISA).LISA is a trusted resource for life settlement information that you and your clients can utilize. 

As the market grew, regulations became stricter. 43 states and Puerto Rico now regulate life and viatical settlements. This means that settlement providers and companies must disclose each transaction’s details, including eligibility of the policyholder, how it affects their income taxes, and what the settlement broker will earn on the sale.

More so, like advisors, these settlement brokers have a fiduciary duty to clients. They must get them the highest bid possible for their policy. Much like an advisor must inform clients of all of their options. RIAs and brokers benefit equally in this case and make great partners in this transaction process. 

Far too often, advisors overlook the benefits of a life settlement. It is important to remember that life insurance policies are assets. They are valuable. Advisors should educate themselves and their clients on what a life settlement is so that they can turn to this cash resource in times of need, especially now. 

Rob HaynieJanuary 19, 2021

Rob Haynie

Mr. Haynie has been a major influence on the evolution of the life settlement industry during his almost twenty-seven year career of proactive involvement. Not only has he been directly involved in negotiating and settling several thousand contracts, he also presently serves on the board of directors of the Life Insurance Settlement Association (LISA) and is a charter member of the Association’s PPC committee, which is charged with the regulatory and legislative activities of the industry. Additionally, he has served on both the Customer Advisory Board (CAB) of ITM/TwentyFirst Services and the Advisory Board of the Insurance Studies Institute (ISI). He was named one of the top 10 most influential people in the life settlement industry worldwide. Mr. Haynie, an Alumnus of Florida State University, currently holds a Life Agent License with Viatical Settlement Broker Appointment for LIS and has spoken at almost every life settlement industry meeting or conference, published articles on the subject and has given many educational webinars as well.

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