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life settlement is one more tool you can use to become indispensable
to your clients.A key to success in any business is being able to offer your customers a variety of products from which to choose. For the life insurance producer, this means having a diverse product offering for clients. By having the ability to offer your clients as many different financial products as possible, you will move that much closer to being an indispensable part of your client’s financial life. One way you can expand your arsenal of sales products is to be able to offer clients the option of obtaining a life settlement:
A life settlement basically is a lump sum cash payment to the life insurance policyholder made for a contractual exchange of rights under the policy. The policyholder sells his or her contractual rights under the policy (at its present market value) to a policy purchaser in exchange for a lump sum cash payment. The purchaser of the policy usually becomes the new owner and policy beneficiary and then is responsible for making all future premium payments. The life settlement industry emerged in the mid to late 1990s as a new financial planning tool for seniors. Before life settlements, the only ways for policyholders to reach into the value of their policies were to borrow against them or to surrender the policies. Both of these options yielded less than satisfactory results for the policyholder and the producer, who previously had no other alternatives to offer clients. Before the life settlement industry became established as a new force in the market, you simply were at a loss to offer your clients a return on their premium investments in the policy greater than what they could obtain from borrowing against the policy or surrendering it. The emergence of the life settlement market has given you a new financial tool to offer your clients. With this tool, your clients now can obtain the present value of their policy as a lump sum cash payment. The cash payment then can be used to satisfy the client’s current financial needs. Also, you can give the client a much-needed service and generate a possible new source of income for yourself. The usual client in a life settlement transaction is 65 or older and has experienced a change in his or her health condition since the policy was issued. The life expectancy of the insured under the policy usually will be between three and 12 years, and the policy itself can be any kind of life insurance policy. It usually is a universal life, variable universal life, survivorship, or convertible term policy. The policy must be beyond its contestability period and issued by a carrier that is rated “A” or better by the major rating agencies. Typical policies also will have a face value of $250,000 and above and can be owned by any kind of entity, whether an individual, a partnership, a corporation, or a trust. In most instances, when the policy is held by a trust, it is held by an irrevocable life insurance trust. You should plan on meeting with your clients periodically to review their financial status and see if any changes have occurred that necessitate seeking a source of funds for the client’s immediate need or discovering funds for the client in what previously was thought to be a dormant asset. In reviewing the client’s present financial status, you might discover various reasons why a life settlement could be the best alternative for your client. The reasons are numerous and varied, but you should be on the lookout for certain factors. The factors might involve an immediate need for funds for such things as current medical expenses, to maintain an ever-increasing cost of living, premiums that have become too expensive, an emergency situation, or simply a desire on the part of the client to transfer liquid assets to beneficiaries now. A case in point was the recent sale of a $250,000 policy by a client whose New Orleans home and worldly goods were destroyed by Hurricane Katrina. The client had an immediate need not only for housing but also for transportation, food, and every necessity we take for granted each day. Above all, the client had an immediate need for cash. Through the client’s producer, we were able to offer a life settlement for the policy for almost 10 times the policy’s cash value. The producer truly came to the rescue of this client and his family at a time when they needed it the most. Other reasons clients might consider a life settlement for their policies don’t necessarily include an immediate need for cash. You should look for other instances where it simply makes good financial sense for a client to enter into a life settlement. These instances include:
There are many reasons a policy no longer is needed, and you should keep an eye out for these situations. At our Web site, we illustrate another case in point involving a corporation that no longer needed a key-person policy. This company was weighing its options with the policy as it recognized that the cost of the policy’s premiums were a drain on its revenues. The company’s life insurance adviser, in reviewing the company’s insurance mix, recognized that the company no longer needed this policy and offered the company an alternative. He was able to effectuate a life settlement with us for this company, which not only solved the problem of the policy’s drain on the company’s revenue but also gave the company a significant cash boost. This added to the company’s bottom line. Needless to say, that adviser is a star in the eyes of the management. In another case, a policy owned by a senior citizen no longer was needed because of changes in the estate tax law. The policy had a face value of $1 million, and the premium payments were beginning to take their toll on the senior’s finances, with all of the other recent increases in the cost of living. Through her insurance adviser, the senior was able to complete a life settlement for this policy that netted her $320,000. Again, the producer put money into the client’s pocket, as well as his own, simply by being aware of and actively seeking the opportunity for his client. Opportunities for you in the life settlement industry are large and getting larger each year. It can be said that you have a duty to stay informed about the life settlement industry and that you might have an absolute fiduciary duty to make these opportunities available to your clients. What would you say to a client who simply let a policy lapse because he couldn’t afford the premium payments when that client could have entered into a life settlement for that policy had you informed him about that possibility? For you to offer this new opportunity to your clients, you first must identify potential candidates from your database, examine the client’s present financial situation, gather more information about that financial situation if it’s needed, review your recommendations with your clients, then select a life settlement funding company that can accomplish the task. Perhaps one of the most important aspects in this process is for you to find and create a relationship with the right life settlement funding company that has the resources and willingness to assist you in all aspects of the process and make the transaction a win-win situation for everyone involved. Robert Taurosa is the director of Ideal Settlements.
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