If the COVID-19 pandemic has taught us anything, it’s to prepare for the unexpected. Life often throws curveballs, and the more prepared we are, the better we’ll be to handle them when they come our way.
With competing financial priorities and new concerns around health and wellness, consumers desire more flexibility in their insurance products. Many seek options that not only provide for loved ones should they die, but that can offer a tangible benefit for themselves while they live.
The life insurance industry has come a long way, and the option for both exists. However, too few policyowners know how to unlock their policy’s actual value, including the ability to sell it on the secondary market as a life settlement. This knowledge gap creates an opportunity for agents and advisors to educate clients.
Determining Which Clients Qualify For A Life Settlement
A life settlement isn’t the right fit for everyone — and not everyone qualifies — so it’s important to understand which of your clients will truly benefit from one. Many policyowners exploring a life settlement have outlived the original need they insured against — for example, a beneficiary who now is grown and financially stable.
More specifically, those who qualify are often high-net-worth, aged 65 or older, and have a life insurance policy with a face value of at least $500,000, although some providers can work with policies as low as $100,000. However, there are other circumstances, usually a change in health since their policy was originally issued —for example, a younger policyowner facing a serious or terminal health diagnosis—where it makes sense to evaluate the sale of a life insurance policy.
If you are unsure whether your client qualifies, check to see if the life settlement provider you are working with provides a complimentary valuation of your clients’ policies. This is also the best way to understand the options available to fit each client’s unique needs.
For those who do qualify, the payout from a life settlement is significantly greater than the surrender value offered by life insurance carriers. For this reason, and because the payout can be applied towards any number of alternative uses including funding long-term care or paying off debt, it can go a long way in helping to alleviate clients’ financial concerns.
A Recent Innovation Creates The Best Of Both Worlds
Although there have been several innovations in life settlements, one of the most popular is called a retained death benefit transaction. This option provides the best of both worlds because it offers policyholders cash now, in addition to a retained benefit paid to their beneficiaries after they die.
This option also means that the policyowner doesn’t have to make any additional premium payments after the transaction has closed. This is a helpful solution for many policyowners who find themselves in a situation where they can no longer afford their premiums, but want to keep some value for their estate.
Equally as important, this transaction offers policyowners an intangible benefit - peace of mind, knowing that in addition to any cash payments they may receive now, their loved ones will be covered when they die. For some, this has eased concerns about potentially selling their policy and then losing their life to COVID-19.
The Changing Role Of Advisors And Agents
As life insurance becomes more dynamic and the secondary market continues its incredible growth, life settlement transactions are becoming more nuanced and customized. As such, you can help your clients begin to think of their policies as dynamic, lifelong assets with a variety of use cases.
Working with the right life settlement provider can make a big difference for your clients and for the reputation of your firm. The most critical component is making sure the provider you choose to work with excels when it comes to both execution and certainty of the transaction. You want to be able to tell your clients with confidence that an offer is solid and bona fide and know that will not change at the last minute.
Finding a firm that doesn’t rely on external capital sources to fund policy acquisitions can help ensure this. In addition, you’ll want to look for a provider that can move quickly and has the expertise and resources to support you and your team – preferably with dedicated experts that understand the value of life insurance as an asset.
As you continue to support your clients in this area, agents and advisors should keep in mind that life insurance isn’t one size fits all — and circumstances change. By setting up annual check-ins to spot changes in client needs, you can identify the scenarios in which tapping into a policy’s living benefits or considering selling that policy to a life settlement provider could be relevant. During these check-ins, be sure to ask a broad range of questions to think through clients’ financial obligations, familial dependents, and health and life goals.
Although the last year has been taxing on all of us, agents and advisors are in a unique position to help. In continuing to explore the flexibility of life insurance with your clients, you can allow them to feel confident and prepared for the future — no matter what it holds.
Reid Buerger is CEO of Coventry. He may be contacted at [email protected].
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