By: Dan A. Penning
Life Settlements Specialist
A life insurance policy is a personal asset like a car. A life policy can be sold like any other asset.
A life settlement is a process whereby a policy owner sells the insurance policy to a third party for an amount more than the cash surrender value but less than the policy death benefit for an immediate cash payment. Life settlements were first approved by the U.S. Supreme court in 1906, over 100 years ago.
Life insurance settlements are a valuable tool for elderly individuals who no longer need, want or can’t afford their life insurance to obtain an immediate cash payment for significantly higher value than simply cashing in a policy for its surrender value or letting the policy lapse. This enables individuals to realize in many instances a return on investment from their premium payments.
Life settlements also result in individuals avoiding the payment of escalating premium payments shrinking other retirement assets and achieves a significant influx of cash to the individual. The cash then results in the individual being able to pay for things like long term care expenses, provide immediate support of their children or assist with educational expenses for grandchildren, reinvest the cash with other existing investments or anything else the client desires to do.,
So why do so many financial advisors avoid inquiring about elderly client’s life insurance as part of their process of advising and managing their client’s financial affairs?
First, the life settlement business in many states is unregulated resulting in unscrupulous individuals and life settlement firms engaging in practices not in the best interest of the individual policy owners. With no regulation, bad actors can operate free from any fear of any revocation of a license or other disciplinary actions from a State licensing board.
So, some financial advisors steer clear of any involvement or referring clients to third parties for life settlements. This is a reasonable reaction by those financial advisors who don’t want the bad acts of someone else to be attributed to them. It’s just not worth the risk.
A second reason that financial advisors associated or employed directly by large national firms are prohibited by their underwriting departments from discussing life settlements with their clients in order to avoid any potential claims of a conflict of interest. Financial advisors recommending a life settlement to a client in order for the client to obtain immediate cash to further invest with the advisor in some instances may not be in the best interest of the client. Again, this reason is understandable and a reasonable measure to protect both the advisor and a client.
However, what about those elderly clients who are unaware of the ability to consider a life settlement as a viable option to simply turning a policy in to the insurance company or worse, letting a policy lapse and receiving no consideration?
Certainly, a financial advisor’s distrust of the life settlement industry and/or the desire to avoid any negative claims from a client based on a referral for a life settlement is at the expense of a client’s financial benefit. After all, shouldn’t the financial advisor be committed to do what is in their client’s best interest?
So, what is the solution? The availability of reputable and committed life settlement specialist who operates on the same premise as the financial advisor to provide services with the best interest of the client being the goal.
That is especially true when very basic practices can be followed to make sure the clients are fully informed while the interests of the financial advisors are also protected.
These practices aren’t unique. Clients often time seek advice from their financial advisors on all sorts of issues that the advisor is neither licensed nor specifically trained to provide advice. For example, a client who needs advice and assistance with selling real estate is routinely referred by an advisor to a licensed real estate agent. A client needing tax advice is referred to a CPA. A client needing legal advice is referred to a lawyer. There should be no difference for advisors draw a distinction with referring clients for life settlements from these other situations.
Clients who are referred to me for advice and assistance get a full compliment of services and guidance to make sure they understand all the factors about a potential life settlement and ultimately, they base their decision on the information we provide. We have a specific process to evaluate each potential life settlement case and affiliations with other experts to gather information on a client’s state of health, life expectancy and information on the client’s policy, all of which are carefully reviewed with the client. All of this analysis is provided free of charge or obligation to the client and provides the client with a basis to make their own decision on whether a life settlement is right for them.
I have always found that referring clients to qualified professionals who help them only strengthens the loyalty and relationship between you as the referring professional with their clients.
In conclusion, I submit that financial advisors should be able at little or no risk satisfy all their duties to clients and still fully advise them to explore life settlements where appropriate by referring the client to a qualified life settlement professional.
