Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
As a financial advisor, you are likely familiar with life settlements as an investment option. It is advisable to be as well versed as possible about what can be a valuable financial asset for your clients. Those you advise may want or need to sell their life insurance policies.
Though the life settlement industry has existed for decades, life settlements continue to be an under-tapped source of funding. This is due to common misconceptions, including that life settlements are only for the terminally ill.
There is also an incorrect common concern that the life-settlement industry is not well regulated. This is not true. You can safely suggest this option for those clients who have a life insurance policy they no longer want, need or can afford.
Top reasons to consider life settlements
As a financial advisor focused on ensuring the financial stability and wealth accumulation of your clients, it helps to familiarize yourself with the many good reasons to offer to your clients this financial move as an option. Here are some top reasons to become well-versed in life settlement for those you advise.
Highly regulated industry
The life settlement industry has evolved and is highly regulated, providing transparency for policyholders and protection for insurance carriers. You can recommend life settlements with confidence as a safe way to extract funds from a life insurance asset.
Since the 1990s, the life settlement industry has greatly evolved in terms of legislation and the development of industry best practices. In 2000, the National Conference of Insurance Legislators (NCOIL) adopted the Life Settlements Model Act. Then in 2004, the Viatical and Life Settlement Association of America (VLSAA) changed its name to the Life Insurance Settlement Association of America (LISA). This was because of a decrease in viatical settlements and an increase in life settlements.
Today, 43 U.S. states and Puerto Rico regulate life and viatical settlements. Life settlement providers and companies must disclose details of transactions, including what the broker will earn on the sale and how the settlement may affect the policy holder’s income taxes and eligibility for assistance, such as Medicaid. In 2017, the Tax Cuts and Jobs Act (TCJA) was updated in favor of policyholders in regard to life settlements.
Your fiduciary responsibility
Financial advisors have a fiduciary responsibility to inform their clients of the life settlement option if they own life insurance policies they no longer need or can afford. Life-settlement brokers, rather than providers, also have a fiduciary responsibility to get the highest possible bid for the client. This makes brokers strong partners for RIAs recommending a life settlement.
Additionally, there is legal precedent regarding fiduciary responsibility in the life insurance field when it comes to life settlements.
In 2014, a couple sued a life insurance company in California in a class action suit for failure to disclose life settlement as an option. The U.S. District Court filing in Riverside County listed allegations of elder abuse, fraud and unfair, fraudulent business practices.
Benefits your clients
Rather than surrendering a life insurance policy, a life settlement can benefit your clients even more. Life settlement investors generally pay more than the policy’s surrender value. Policy holders sometimes get as much as 60% of the policy’s face value. Your clients are likely to benefit from the additional cash and be pleased with the outcome.
As a financial advisor, your job enables your clients to achieve their financial goals, which can be accomplished only if trust is built. By objectively educating your customers about the benefits and drawbacks of life settlements, you build a trusted rapport. This trust will occur whether they choose to try a life settlement or another option.
Positive long-range implications for your business
There are many benefits of assisting clients who require financial assistance with obtaining funds through life insurance policies. In addition to helping alleviate financial constraints your clients may be facing, you expand your business offerings. Assisting a client with the sale of a life insurance policy may mean more money under your management in the future.
Ignoring life settlements is a wasted opportunity. By expanding your toolbox and including life settlements, you can improve your client relationships. This will differentiate you in the financial advising field and allow you to offer a broader range of services
Lucas Siegel is the founder and CEO of Harbor Life Settlements, a life settlement company that is dedicated to helping seniors and the terminally ill sell their life insurance policies, and Suncrest Benefits, a life settlement broker that helps policyholders receive the maximum cash value for their life insurance through its proprietary bidding platform that reaches the world’s largest buyers.
Read more articles by Lucas Siegel
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
