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Q4 - Vol. 2, No. 2, October 2005 Life Settlement News
Running on Four Cylinders: There is Room for Acceleration 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. However, we are starting to see movement in the needle as more broker-dealers begin evaluating the spirit of the NASD "suitability rule" and the obligation to a senior client who may be surrendering a policy for its cash surrender value when they could possibly obtain three times that amount. Secondly, some insurance agents and financial planners have not reached a level of proficiency with the product where they readily recognize opportunities where a life settlement may be the best option. As Louis Pasteur once said, “chance favors the prepared mind.” Professional advisors should take the time to read case summaries and industry articles that may trigger ideas for “problem solving” using a life settlement.
We recently encountered a case where an 82 year old female was working with her advisor to free up some cash for real estate investments. Her advisor noted that she owned several large life insurance policies totaling $4.8 million for which she was growing wearing of making the premium payments. Rather than accept a low cash surrender value of $242,983 to be used for her real estate investments, the agent recommended a life settlement for each policy which would net her four times the cash surrender value. The amount of capital available for real estate investments was substantially maximized because her advisor had done his homework and knew the value proposition it presented in this circumstance.
It is important for insurance professionals to be mindful that a life settlement is not just a linear transaction involving an insured senior with an unwanted life insurance policy. There are a variety of family dynamics between an insured and his spouse or family members that should be considered in a problem-solving discussion that includes using the proceeds from a life settlement. Therefore, it is important to “think outside the box” when identifying opportunities for life settlement solutions that may require new insurance products or cash to achieve other family objectives.
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