ADVISOR ADVOCACY IS CRITICAL
MEANINGFUL LOSSES AND LOST OPPORTUNITIES
WITHOUT YOU, YOUR CLIENTS ARE BADLY EXPOSED
Is a client of your firm better off with you,not responsibly engaging them about selling an unwanted or surplus life insurance policy from which they might be able to extract significant liquidity?
If a client were to lapse a policy that they later learned might have had significant value to a 3rd party buyer, but about which you never discussed the option, how would you defend the decision not to have engaged them about it? And if you do engage a life settlement broker, how do you defend the opaque process and 30% fees? A single buyer who isn't compelled to make a competitive offer?
Without your advocacy and guidance, clients are left badly exposed to a universe of only sub-optimal and bad outcomes when they are - or should be - assessing the utility of life insurance that they own or whether they might prefer the liquidity that a sale might create. Lapse, surrender, or settlement to a single buyer, who pays a non-competitive price, or through an egregiously expensive and inefficient broker, all ensure that your client will receive far less for their asset than they should.
We are here to make sure that you can deliver the best possible outcome for your clients, regardless of whether they assess they should maintain or sell a policy.
Below are just a few actual examples we've discussed with client advisors that would have been prevented had the advisor simply been aware of what the client owned and inquired earlier - or, ideally, incorporated into their planning process a regular review of the client's life insurance holdings.
Real client losses and missed opportunities
Case Studies
$600,000 missed opportunity
Policy: $10,000,000 GUL
Insured: 73 year old healthy male
$10 billion RIA
The insurance team at a large RIA engaged us regarding a 10 year-old $10,000,000 GUL that the 73 year-old policy owner and insured no longer wanted to maintain and on which he was running the cash value down to cover premiums.
Unfortunately, although the policy remained in force, the funding approach that the owner had taken resulted in a lapse of the guarantee of the policy six months earlier, but neither the owner nor the advisor was aware. Had the policy been maintained ($75,000 premiums), the policy was likely worth at least $600,000.
$400,000 missed opportunity
Policy: $2,000,000 UL
Insured: 83 year old healthy male
Large national wirehouse
The advisor, at a large wirehouse firm, responded to an outreach from us to discuss his 83 year-old retired dentist client's joint life $2,000,000 policy. An analysis of the policy determined that it was likely worth $400,000, but the advisor had permitted the policy, which had no surrender value, to lapse just a month earlier.
We helped the advisor, who was also the writing agent on the policy, to engage the carrier to determine if the policy could be reinstated, but, unfortunately, that was no longer an option.
$300,000 excess fees
Policy: $9,000,000 UL
Insured: 74/73 year old healthy male and female
Lage national BGA
The producer with a large BGA had recently helped his clients, a couple in their mid-70's, to sell $9,000,000 across three policies as they had determined that they had more insurance than they needed and wanted to distribute the proceeds to their children. "I just wanted to do the right thing and help a client."
After a "torturous, unbelievably confusing" four-month process, the policies sold for $1,200,000, netting his clients $800,000 - $300,000 less ($150,000 for each of their adult children) than they would have with our fee structure.
$6,000,000 lower settlement value
Policy: $20,000,000 GUL
Insured: 88/87 year old healthy male and female
$190 billion RIA
The head of insurance at a large, national RIA engaged us about a $20,000,000 guaranteed UL owned by a 63 year-old client on his parents, both in their late-80s. The advisor was assessing various options for the policy as the owner was facing what had become something of a prolonged liquidity crunch and the $175,000 premium was under consideration.
We assessed the good news that the policy was likely worth >$1,000,000 to the market, but, the bad news was that had the minimum guaranteed payment been made the previous year (we could see in our analysis of the shadow accounts that it had not been made); if it had been made and maintained the guarantee, the policy would likely have been worth $7,000,000. So, had a dialogue about options for the policy taken place earlier, the client could at least have been able to make an informed decision as to how or whether to maintain the policy, to include testing the market before not making the minimum premium due.
HNW/UHNW CLIENTS IN DANGER FROM POORLY MONITORED INSURANCE
IMPERILED TRUST OWNED LIFE INSURANCE
A recent study shows in just how precarious a position many policies are - at least partly because they are so poorly monitored as the owner's needs and means evolved with time and life events – and suggests the value that attentive, conscientious advisors can have, at minimum, preventing catastrophic downside losses after years of premiums being paid.
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43% are projected to lapse prior to maturity
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37% are projected to lapse before the insured’s life expectancy
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49% of no-lapse guarantee (NLG) provisions have been compromised (significant implications on cost and settlement value, thereby limiting options)
The implications/benefits for your clients of greater engagement – with the right 3rd party partners for domain expertise – are financially and psychically profound, whether mitigating downside risk, by adjusting the insurance portfolio to better fit evolving needs, or capitalizing on the upside of monetizing a policy that no longer fits your client's needs.
