Life Settlement’s Benefits Often Are Misunderstood

By Stephen Terrell

Every financial advisor knows that this business is fiercely competitive. The key to success is understanding tools that provide clients with flexible options.  Life settlements are just that kind of tool. However, despite their growth, too often life settlement’s benefits aren’t understood and go unused.  

The life settlement industry isn’t new; it has been around for more than 20 years. Yet while the growth of life settlements reflects how advisors are embracing their advantages, too many advisors remain uninformed, or even worse, misinformed about them. 

The result is lost opportunity for both advisors and their clients. What should be a powerful and timely weapon in every financial advisor’s investing toolbox goes unused as incorrect perceptions work against advisors and the clients they serve. 

However, this disconnect with financial advisors is an education gap that is easily remedied.

Life Settlements – Fact and Fiction

Life settlements are investment options growing in popularity because they are flexible and offer unique benefits. No special knowledge set is required to obtain a life settlement and transactions are regulated by state statutes that protect client privacy.

Today’s life settlements are opportunities to serve clients.  These are not the stranger-oriented life insurance practices of years ago. The industry is licensed and scrutinized, the buyers are trustworthy, and transactions are monitored by state insurance departments.

Fiduciary Best Practices

Life settlements often reveal that the policies can have significant asset value beyond the value of the contract.  While this is news, best fiduciary practices dictate that, like every investment being considered by a financial advisor, the life settlement option must pass the does it make sense for the client test.

If the client is pleased with the policy, can afford it, and it aligns with the overall investment strategy, it should be left in place. Additionally, in every case, estate tax exemptions and consideration also must be factored in as part of the long-term plan.

When Life Settlements Make Sense

There are three primary scenarios in which life settlements make sense:

First, old, outdated policies – and many new ones – may be underperformers. Like every underperforming investment, these should be analyzed closely.

Second, if the policy is expensive and the client often can’t afford it. Allowing it to lapse gives the client nothing, whereas selling it may yield even more than the policy value.

Third, if the policy no longer makes sense.  Life insurance purchased for a young and growing family may have been outgrown and may no longer fit the policyholder’s investment strategy.

Money-in-Motion Liquidity Events

This strategy creates capital and capacity for new investments.  Additionally, this is a way to supplement or redefine retirement lifestyle and to fund long-term care, when necessary.

In this context, a passive, forgotten and outdated investment is used to transform or ignite investment strategy and offers a client a new beginning or timely solution.

What Advisors Should Do

With the facts in hand, look at your client’s portfolio with a new understanding of the safety and benefits of life settlements that may make sense for them. Advisors will create new opportunities to serve their clients and grow their business.

Stephen E. Terrell is senior vice president of market development and branding of The Lifeline Program, a life settlement provider based in Atlanta, Ga.  He may be contacted at [email protected].