Time to Rethink Fiduciary Responsibility

Why Life Settlements Deserve a Place in every Advisor’s Toolkit

For decades, financial professionals have relied on a trusted set of tools to help clients manage risk, plan for retirement, and navigate life’s financial transitions. But what happens when one of the most valuable personal financial assets, a life insurance policy, stops serving its original purpose or is no longer needed?

That’s the moment when a lesser-known option, the life settlement, should come into play. Unfortunately, many advisors overlook or are not educated about it. And in doing so, they may be leaving their clients—and their fiduciary duty—behind.

Bryan Nicholson, Executive Director of the Life Insurance Settlement Association (LISA), and Brian Casey, a partner with Troutman Pepper specializing in insurance transactional and regulatory law, explain fiduciary responsibility, regulatory reality, and why life settlements are no longer a fringe concept, but a financial planning essential.

Understanding Life Settlements—and the Duty to Present Them

A life settlement allows a policyholder—typically a senior age 65+—to sell a life insurance policy they no longer want, need, or can afford to a licensed provider for a lump sum. That lump sum can be many times higher than the policy’s cash surrender value.

Despite being legally recognized for over 100 years and regulated in 45 states, life settlements are still often misunderstood or ignored.

“Many advisors don’t realize that this is an option—or that failing to present it could raise questions about their fiduciary responsibility,” said Casey. “The industry hasn’t yet seen widespread litigation on that point, but the winds are shifting, especially with respect towards more consumer protection for senior populations.”

In fact, life settlement brokers are fiduciaries by statute. “That means they’re legally obligated to act in the best interest of the policyholder,” said Casey. “Advisors who partner with licensed life settlement brokers can bring that level of fiduciary protection to their clients.”

According to the SEC’s Fiduciary Interpretation, “An investment adviser must, at all times, serve the best interest of its client and not subordinate its client’s interest to its own.” That makes overlooking a valuable opportunity like a life settlement more than just a missed chance—it’s a potential compliance concern.

The Hidden Risk of Inaction

What happens when a client surrenders a policy—or lets it lapse—without ever being told a life settlement might have been possible?

“We’ve seen cases where policyholders or their families come back after the fact, frustrated they weren’t made aware of the option,” said Nicholson. “They find out too late that they could have received five or even ten times the policy’s cash value.”

As more consumers become aware of life settlements, the legal and reputational risks for advisors who fail to present the option are growing. In several states, carriers are required to notify policyowners of the life settlement option when they inquire about surrendering or lapsing a policy.

Stories That Bring It Home

Nicholson pointed to LISA’s “Faces of Life Settlements” campaign to illustrate the real-world impact of these transactions. Some examples used include:

• David, 88, was paying $75,000 annually on a $2 million policy he no longer needed. He received $792,000 in a life settlement—far more than the $42,000 cash surrender value.

• Janice, 78, was struggling to cover long-term care costs. A life settlement turned her $750,000 policy with just an $11,000 surrender value into $90,000 in cash.

• John and Mary, in their 70s, were about to surrender a $500,000 survivorship policy when they learned about life settlements. Their policy delivered $85,000 in value they didn’t know they had.

“These are not rare-edge cases,” said Nicholson. “They’re the types of clients every advisor has in their book of business.”

Why Advisors Miss the Opportunity

If life settlements offer such clear value, why are they still so often ignored?

Casey said several factors contribute: “There’s lingering discomfort tied to the early days of viatical settlements in the 1990s. There’s confusion about the process. And in some cases, there’s a fear of regulatory scrutiny or lost commissions.”

But those fears are largely unfounded. Today’s life settlement industry is tightly regulated, with licensing, disclosure, and escrow requirements that protect all parties. And agents who help facilitate a transaction are often eligible for referral fees or commissions—particularly when the alternative is a lapsed policy that would generate nothing.

“In many cases, the policyholder reinvests the settlement into new insurance products, annuities, or long-term care coverage,” said Nicholson. “There are follow-on opportunities for the advisor that strengthen—not weaken—the client relationship.”

The Demographic Imperative

Beyond fiduciary duty, demographics are creating increased demand for solutions like life settlements.

“We’re looking at a rapidly aging population, most of whom are underprepared for retirement and long-term care costs,” said Nicholson. “Meanwhile, many of them hold life insurance policies that no longer serve their original purpose.”

Some signs that a client may be a good candidate for a life settlement include:

• Rising premium costs that are straining the client’s budget

• Changes in life circumstances (e.g., retirement, death of a spouse, sale of a business)  

• No longer needing to replace lost income or support dependents

• A policy that’s about to lapse or be surrendered

“This is often one of the largest assets on a client’s personal balance sheet,” said Casey. “Why wouldn’t you evaluate it the way you would any other financial asset?”

A Tool, Not a Gimmick

Nicholson emphasized that LISA doesn’t advocate for life settlements in every case. But he firmly believes they should be part of the broader financial planning conversation.

“This is not a fringe product. It’s a legitimate financial tool,” he said. “And our role at LISA is to make sure it’s understood, accessible, and handled with integrity.”

To that end, LISA is investing in expanded educational outreach, building partnerships with IMOs, RIAs, and broker-dealers, and gathering industry-wide data to support transparency and trust.

“We want this to be a mainstream conversation,” said Nicholson. “And we’re committed to helping advisors get there.”

Getting Started

For advisors who want to explore whether a life settlement may be right for a client, LISA offers a range of resources—including its newly updated Guide to Common Life Settlement Questions.

While LISA does not provide financial advice, its members include licensed brokers, providers, legal experts, and underwriters who specialize in facilitating life settlement transactions.

“Life settlements aren’t for everyone,” said Nicholson, “but they are a powerful option when the time is right. And advisors who want to uphold their fiduciary duty need to know what’s possible.”

Life insurance settlements are no longer just an option; they’re essential in financial planning. Visit LISAtoolkit.com or scan the code to get your Guide to Common Life Settlement Questions.