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Insurance Producers: Problem Solving with Life Settlements
A life settlement is not always a linear transaction involving just
an insured senior who wants to maximize the cash in his life
insurance policy to fund other investments. A life settlement is
often a solution to a financial challenge faced by the insured, his
or her spouse, and even their children. We recently authored an
article for the October 2005 issue of "Health Insurance Underwriter,"
a magazine published monthly by the National Association of Health
Underwriters. Because 89% of the magazine's readers sell life
insurance along with long-term case and health insurance, the editor
asked that we write an article explaining to readers how life
settlement proceeds might be used in creative ways to address other
family needs. As the editor pointed out in his preface message,
"insurance is a promise to make things whole in a time of need." In
our article, we go on to explain how the proceeds from an unwanted
life insurance policy can be used to fund other insurance products,
including long-term care and health insurance, for family members in
need.
Read article.
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There continue to be changes to the regulatory scene in 2005 as it
relates to life settlement legislation in some jurisdictions.
Professional advisors such as attorneys, financial planners and
accountants should be part of the overall "brain trust" involved in
life settlements. Although many life settlement transactions
originate with the life insurance agent, the process often requires a
collaborative approach by the entire team of professional advisors.
We encourage an interdisciplinary collaboration of financial services
professionals, CPAs and estate planning attorneys working together to
serve the best interests of the client.
Charitable organizations who own donated life insurance policies may,
with the donor's consent, pursue a life settlement on policies for
seniors over the age of 70. More charitable organizations are now
discovering that there "is" another option to letting a policy lapse,
or to accepting a low cash surrender value. The proceeds from a life
settlement owned by a charity are not taxable for IRS 50l(c)3
organizations, so planned giving officials should consult with their
senior donors to discuss the most advantageous option if a senior is
considering a life settlement for charitable giving purposes.
We are often asked by the financial and insurance professionals with
whom we work to explain the marketplace dynamics in terms of how
funders price their life settlement offers. One of the primary
factors that drives the pricing of offers is the involvement of life
settlement brokers who wield substantial bargaining power with
funders.
Even though more professional advisors are recommending life
settlements, the product is often under-used. We frequently hear
from registered reps of broker-dealers with wealthy senior clients
who are pressuring them to assist with a life settlement transaction.
Since some broker-dealers do not permit their registered reps to
engage in life settlement transactions, reps often refer the client
to the financial planner or insurance agent down the street. In some
instances, the lost opportunity for the registered rep turns into
lost revenue for the broker-dealer firm and perhaps even the loss of
a client to a new financial advisor.
