Knowing what to look for and a desire to do the right thing goes a long way.
Preferred to fund different strategy for Trust after death of husband on 2nd to die policy
Divorce - rather than maintaining policy, settle and split proceeds
Change in beneficiaries obviated need for death benefit
Preferred liquidity of a sale to SV of a policy that owner no longer wanted to maintain
Unpalatable increase in premiums, policy no longer "worth it"
Opportunistic windfall, borne of health diagnosis and unwanted policy (term conversion)
Illiquid trust that owner could not/would not fund more
Adjusting large life insurance portfolio & prefer proceeds of sale to SV
Charitable Trust that donor no longer wished to fund/still healthy & lived much longer than anticipated
Corporate-Owned Key Man on departed CEO; policy obviously no longer necessary, but of value
Buy/Sell policy after sale of business of no value to insured/owner's estate
Proceeds to fund repayment of poorly performing premium finance loan to avoid collateral call
Key Man policy on owner after sale of business with subsequent health diagnosis that created value in policy
With growth of other assets in the estate, owners simply no longer wanted policy for beneficiaries
Term conversion opportunity for windfall
While certainly episodic, the opportunity to monetize an unwanted or surplus life insurance policy is more frequent - and of greater value - than most wealth advisors and life insurance producers are aware.
Most basically, just knowing to respond to a client's inquiry about an interest in a life settlement and the variables of a policy likely to have value to investors will ensure that you can at least be responsive to the opportunities borne of a client knowing to ask - and to do so in the most transparent, effective, and lowest cost way. But, given 10% awareness among policy owners of life settlements, you'll likely miss the other 90%.
So, while we'd be humbled to assist you with the 10%, we'd love to work with you to ensure that the other 90% don't unwittingly forfeit a policy that might garner significantly greater proceeds in a sale.
UL/VUL/Term
Policy Types
Any permanent, cash value - or convertible into cash value - policy can work, depending on other factors (Whole Life policies rarely work)
<72
If less than healthy
This is a function of duration demand in the market, the longest of which is about 16 years (life expectancy)
>72
If healthy
For women, add two years and for joint policies on which both are alive, add another two years before a policy is likely to work
$500K - $100M
Policy Size
Although we can help with smaller policies, there is little market demand, given the underwriting and admin costs relative to potential return
Respond
Simply know what to do, generally what works, and who to contact in those instances that a client expresses to you that they want to pursue a settlement of a policy OR that they no longer wish/intend to maintain a policy
Simply Ask
Know what they own and occasionally query - perhaps annually - as to preferences and observations of policy performance/utility can ensure that your clients own the right policy (or no policy) to meet their broader financial planning & estate objectives
Track Life Events
Simply be aware of events that directly impact the utility - often binary need - of life insurance they own, whether purchased for protection or estate planning needs and relative affordability, especially among older insureds with trust-owned policies
Changes in Financial Plan
Especially true among policy owners/insureds live longer than the initial plan/need for the insurance and or those whose policy was tied to a business or partnership (key man and buy sell) and the owner/insureds has sold the business or left the partnership
AT MINIMUM, Understand what clients own and why...
You are uniquely positioned to assess the utility of a life insurance policy and which options – maintain, change, forfeit, settle – should be considered
Knowing what to look for - or even just about the existence of policies, life events and milestones in your clients’ lives, or estate changes that may impact the utility of a policy - and applying basic processes to regularly engage those clients about them as part of the broader financial planning process, you can ensure that clients;
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Maintain only those policies that cost effectively contribute to broader objectives and/or responsibly,
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Can deliberatively explore a change to a different policy to most cost-effectively maximize the utility of a policy that serves a protection, business planning, or estate planning objective, and
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In those instances that maintaining a policy no longer makes sense (or for which the protection or planning need is no longer relevant or cost effectively achievable), consider a sale with an understanding that it might actually have value for your client.
Getting Started
If you have identified a client who expresses an interest and exploring the option to sell a policy that they no longer want or need, or you find them in a more programmatic and strategic approach to analyzing your clients' life insurance, it's only a few questions to figure out whether assessing its potential value as a settlement might make sense.
And then a straight forward process to initiate engaging the market.
