Financial professionals who are frequently advising their senior population will often consider exploring a life insurance settlement. It is in the best interest to discuss and weigh the option of a life insurance settlement for both the advisor and the client.
Seniors often need extra income to help cover costly medical bills, long-term care or any other living expenses. If he or she decides to move forward with a life settlement transaction, ensuring financial stability is so important for protecting this at-risk community.
There are four best practices that we like to follow in order to protect our client’s best interests during a life settlement.
Life Insurance Discovery Process
The first step of any life settlement transaction should be the institution of a discovery process. This should include information about your life insurance and life insurance policy. The details of the insurance company that you signed a contact with and your beneficiary are important details to determine what future years will look like if you continue to pay the current premium payments.
Now that we have an understanding of the basics, we can determine how life insurance fits into your life plans and objectives with financial transactions.
Determine a Worthwhile Investment
A simple but important question to consider is: “when was the last time you had your life insurance appraised?” All too often in the life settlement industry we encounter senior clients that have owned their life insurance for an extended period of time. Many times in this scenario, the advisors who initiated the purchase of the insurance plan are no longer in the picture.
A life insurance appraisal is vital for determining whether the investment in life insurance is either worthwhile, or detrimental. Sometimes a terminally or chronically ill person can no longer afford to pay the premiums for his or her terminal illness. A cash payout is sometimes a much needed lifeline.
There are so many factors that come into play in an appraisal that many seniors unfortunately are unaware of. He or she could be paying unnecessary premiums or their permanent life insurance policy may not even be needed at all.
Check The Secondary Market Value of Your Policy
If you are considering making a lapse or surrender of your life insurance or even term insurance policy, there are four components that come into play when determining the value of the policy:
- Amount of the death benefit
- Expected remaining life of the insured
- Amount of premiums to be paid until the death benefit payment
- The discount rate
This mathematical determination takes into account the impact that each factor has on the value. In general, the higher the premiums, the longer the life expectancy and the higher the investor’s return, the lower value of the policy. On the contrary, the lower the premiums, the shorter the life expectancy and the lower the investor’s return, the higher value of the policy.
Every scenario is different, and that is why it is a good idea to seek out an independent appraisal for all policies/insureds. The selling price of a life policy will always be influenced by inevitable forces in the market dictating what investors are willing to pay at any point in time. However, the selling price will always be greater than the cash surrender value but less than the death benefit.
Independent Life Settlement Resources
It is important to have a life settlement resource that sits on the same fiduciary side of the table as you. It is a good idea to have your life settlement resource provide all of the reps and warranties to prove their fiduciary orientation.
When selecting a life settlement company, you want one that believes the policyowner should receive guidance from an advisor or advisory team and brings the necessary skill set to help control the case with all stakeholders.
Life Insurance Settlements is continually educating and providing information to direct buyers and marketers that have a fiduciary responsibility to not only the sellers, but also the buyers. We aim to disintermediate direct-to-consumer resources with all of our advisory team.
Selling your life insurance is not an option for every policy owner. If you think you could be a good candidate, give us a call for more information on how the process works. Our team of life settlement brokers are experts and have the knowledge and experience needed to ask and answer the crucial questions that will help you make an informed decision.