As a trusted advisor, your clients rely on you to make informed decisions on their behalf. You’re making choices that are directly impacting their finances—their lives—and they have faith that you’ll make the right decisions, or at least guide them in the right way.
So, would you take $100,000 of a client’s money and toss it down the storm drain? Without ceremony or pomp, just let it wash away?
The answer is obviously no. You’re too good at your job, have too much common sense, to do something that crazy.
Unfortunately, this happens every day. Many advisors have elderly clients with life insurance policies that they, due to varying circumstances, no longer want or need. Perhaps they’re underperforming, or maybe the policy just isn’t serving the need that it used to. In any case, more often than not, they simply let the policy lapse.
Letting a life insurance policy lapse is just like letting $100,000 (or more!) wash down the drain. Why? Because many trusted advisors either don’t know about or simply don’t consider the alternative of a life settlement.
A life settlement is the sale of a person’s life insurance policy to a third-party investor. In a life settlement, the policy’s owner transfers the ownership of that policy in exchange for an immediate cash payment from the buyer. Candidates for life settlements are typically 70 or older, with a life insurance policy that has a "face value" (death benefit) of more than $100,000. That money can be allocated to better, more effective investments, or can be used in any way the client may desire.
In many situations, life settlements can provide your clients with a significant amount of cash that can be used for any number of needs, all while removing the burden of a monthly premium payment. That saved premium amount, plus the cash from the sale of the policy, can provide your client with numerous alternative options.
For example, for any clients that have an already well-established retirement fund may want to use their money for recreational purposes: buying a vacation home, traveling the world, or simply living at a higher quality of life.
If your clients are worried about outliving their retirement funds, a life settlement can pad their savings and help ensure that they get to live their golden years in comfort, all while removing their monthly premium payment.
Some policies are a better fit for life settlements than others. Universal life policies are often great options for life settlements. Because they accrue cash value but at a low rate, they can often return 5-8 times their cash surrender value as a life settlement. Term life policies may be great options for life insurance, but it’s a good idea to buy them with a rider that converts the policy to universal if the need arises. This also provides an alternative for a life settlement should the need arise. Whole life insurance policies are conditional: if the policy is young, or able to be converted to universal life, it’s a great fit for life insurance policies. However, whole life insurance policies accrue cash value, so if the policy has existed for many years, there may not be a significant difference in the return from its cash surrender value versus its value as a life settlement.
A life settlement may not be a good option for everyone, but it’s something that merits consideration for both advisors and their clients. It opens up a world of possibilities for liquidity in alternative investment options, or could help a client build a bigger nest egg for retirement. The next time you have $100,000, don’t let it wash down the drain.