Life insurance policy appraisals: debunking the three biggest misconceptions

By William Scott Page

For the past five years, I have been actively promoting that agents and advisors should suggest life insurance policy appraisals to clients. I speak with financial professionals all around the country, at conferences and other events, and am frequently told by advisors that they don't think that their clients need to appraise their policies. I always ask why, and I get a variety of answers. Here are the three biggest misconceptions about life insurance policy appraisals and why they're wrong.

Misconception #1: "My clients don't have a short-term need that can be met by selling a policy."

Many advisors view policy appraisals solely in terms of qualifying for a life insurance settlement. Although this is a significant aspect, it is short-sighted to believe it is the only reason to appraise a policy. We look at appraising a policy as like how a business takes inventory. If you have a storeroom filled with merchandise but don’t know precisely what you have and how much it is worth, you are doing your business a disservice. If you don't understand the value of a significant asset like a life insurance policy, it's like having a locked storeroom with inventory, and you don't know what it's worth.

By appraising a policy, advisors can better understand its value and explore alternative options that may better serve their client's evolving needs. For example, a policy that was necessary when the insured's children were young may no longer be the best option. Understanding the value of the policy on the secondary market enables advisors to suggest alternative solutions, such as using the proceeds of a sale to fund long-term care insurance. If you don’t know the policy's value, you can’t know the available options.

Misconception #2: "A policy appraisal is expensive."

Contrary to some beliefs, policy appraisals are not costly for the client or the advisor. In fact, they are typically provided free of charge. By removing financial barriers, policy appraisals become an accessible tool for advisors to serve their clients' needs better.

Misconception #3: "A policy appraisal is time-consuming and complicated."

Thanks to advancements in technology, the old process of determining the value of a life insurance policy has been streamlined. In the past, brokers or providers required extensive data, including medical records, illustrations, and coverage information, which often took weeks or months to compile.

However, with modern policy appraisals, the process has become quick and efficient. An appraisal can be completed within a couple of days using a policy illustration and a non-invasive medical questionnaire. These appraisals are not binding offers but provide a remarkably accurate ballpark value. By eliminating the need for arduous paperwork and reducing waiting time, policy appraisals have become easy and accessible for both advisors and clients.

Policy appraisals enable agents and advisors to understand their clients’ financial situations comprehensively. By appraising a life insurance policy, advisors can understand their client's assets and liabilities. This understanding allows for better advice, recommendations and strategic planning that aligns with the client's best interests. Policy appraisals empower advisors to explore alternative solutions, such as selling the policy to fund other financial needs or taking advantage of market opportunities. Ultimately, policy appraisals serve as a valuable tool in providing comprehensive financial guidance to senior clients.

By dispelling the misconceptions surrounding policy appraisals, financial professionals can leverage this valuable resource to enhance their services and better cater to the evolving needs of their clients.

Wm Scott Page, is a life insurance policy appraisal expert, published author and CEO at policyappraisal.com and WeBuy75.com. He may be contacted at [email protected].