Why are agents against life settlements?
Life insurance and the life settlement industry go hand in hand. You cannot necessarily have life settlements without insurance policies intact. However, Insurance agents see life settlements as a threat. They want to keep their insureds under contract, forgetting to keep their best interest in mind.
Life insurance agents are often discouraged from mentioning life settlements by the companies they work for. Insurance companies have had a sense of resistance to the industry as they believe it is taking business from them. Some are even forbidden to be involved in a settlement transaction. To life insurance companies and agents, profitability takes precedence.
The Backlash of Resistance
Insurance carriers need to keep their policyholders under contract in order to get paid. Therefore, it makes sense that they would not want them to sell their policy. Even if the client surrenders the policy, the insurance carrier does not have to pay a significant amount to the policyholder, and the carrier still benefits. They are simply focused on profit. That is the issue.
When policyholders find themselves in difficult financial situations and turn to their life insurance policies to eliminate them or reduce their premium payments, it often results in surrendering the policy or lapsing it. It is unbeneficial to both parties.
As life settlements continue to be a soluble solution for Seniors, insured people are starting to question the fiduciary duty of their life insurance company’s agents are discouraged from mentioning life settlements. Still, it is not what is best for the policyholder.
One life insurance company was reprimanded for failure to mention the option to a client in a recent case in 2014- Larry Grill vs. Lincoln Life Insurance Co. Larry filed a lawsuit against Lincoln for fraudulent concealment of life settlement benefits and financial abuse of an elder. Their life insurance broker had failed to inform them that they could sell their life insurance. Instead, their agent suggested paying more in premiums or reducing their coverage.
Subsequently, the policyholder entrusted the agent. Since the policy was not generating enough of an investment to cover their insurance cost, they surrendered more than $5 million of their life insurance policy worth $7 million in life coverage. The policyholders learned that they could have sold the policy and made a much more profitable amount later on. Courts confirmed that failure to disclose life settlement information could be financially harmful to both the policyholders and the policy beneficiaries.
The life insurance brokers should have had the client’s best interest in mind. They could have retained a large amount of their ten years of premium payments. The policyholder lost a significant amount of money instead. Unfortunately, this happens to many policyholders that are unaware of life settlements.
Life Insurance brokers may not mention a life settlement for a number of reasons aside from insurance carriers’ opposition to life settlements. Education is one of them. You would not want to recommend something to someone that you know nothing about.
Life insurance carriers do not encourage training or education on the matter, but agents can access these tools on their own. They can learn more about life settlements and how they can help their policyholders. WebCE has various courses made for easy and quick learning for anyone invested in the life insurance industry.
If you are already a seasoned life insurance provider, you know that continuing to learn about policies and the best options available to your clients is crucial. On CEU, you can expand your training on life insurance policies and their qualifications for life settlements.
Another form of resistance in the market from life insurance agents comes from regulatory concerns for the policyholders themselves. Fortunately, there are many regulations in place that protect them. Life settlements are currently regulated in 43 states, meaning all settlement transactions must be tracked and reported. The industry is focused on transparency as it grows.
Settlement brokers also must be licensed, and they have a fiduciary duty to the people they work with. That is why more and more insureds prefer to work with settlement brokers as opposed to providers. Life settlement brokers have been helping seniors get cash for their life insurance policies for decades.
How A Life Insurance Agent Can Benefit
Contrary to resistance, not suggesting a life settlement option can be unbeneficial to both parties. Life insurance companies should be using life settlement options to their advantage. If licensed insurance agents recommended life settlements, it could result in more business.
1. Renew contracts
A life settlement should be viewed as an opportunity for agents. Once a client has sold their policy, it is an opportunity to get them into a new policy that better suits their needs and financial circumstances.
Working with your clients and their life’s changes is a better way to retain a relationship with them. These relationships create lasting business for life insurance carriers in the long run.
2. Long-term business strategy
There is a financial benefit for agents too. A life settlement means more cash for your client. After all, their life insurance policy is an asset, and they have the right to sell it. But you can benefit from the sale of their policy as well by earning a referral fee from life settlement companies or brokers for any closed transactions that result from your recommendations. You can even continue to earn renewal commissions on policies that would otherwise lapse.
A life settlement cannot exist without first having a life insurance policy intact. They will never take life insurance carriers’ place and should not be considered a threat. Refocusing the life insurance industry on protecting the clients and doing what is best for the policyholder will always be much more beneficial.
Life insurance agents and life settlement brokers can work together to meet people’s needs. The two industries coincide and have an opportunity to profit together.