An Insurance-Licensed CFP Considers a Life Settlement

Or, a trustee may decide it no longer makes sense to maintain a marginally beneficial trust-owned life insurance policy where the accelerating premiums are draining cash assets from the estate.

Whatever the specific situation may be, thousands of seniors have benefited financially by selling unwanted policies and using the cash for more pressing needs.

According to a recent market data survey conducted by Life Insurance Settlement Association (LISA), consumers were paid over $750 million for their unwanted life insurance policies in 2021.

Other highlights from the survey revealed the following:

Consumers received an average of 7.8 times more than their cash surrender value (representing over $660 million more than policy owners would have received from life insurance carriers.)
In 2021, more than 3,000 transactions were conducted by LISA members totaling over $4 billion in face value.
The average amount of net death benefit per transaction was $1.35 million.
LISA estimates indicate that life insurance policies valued at $642 billion are allowed to lapse or are surrendered annually by consumers because most are not aware of the life settlement option.

While recent growth in the market is attributed to a more mature state regulatory environment and broader consumer acceptance of the option to sell obsolete policies, growing numbers of insurance and fiduciary professionals are also viewing life settlements as a prudent exit strategy from burdensome coverage.

More policy owners are recognizing that selling a policy creates a liquidity event for an otherwise static asset.

Not only does the seller receive a cash payout multiple times the policy’s cash surrender (if any), but also they effectively shift an unwanted expense to the income column.

In the case of expiring term policies with no intrinsic value, or in the case of a UL policy about to lapse, selling the policy is clearly the best possible solution.

The proceeds from selling the policy can be repurposed to achieve other financial goals, such as investing in new products or paying for long term care.

Will the Market Exist in 10 Years?

In a Nov. 1 news announcement by industry researcher Conning, the market forecast calls for a double-digit increase in the annual gross market over the next ten years.

The two primary drivers contributing to Conning’s optimistic outlook include the likelihood that (a) seniors will seek sources of income to help offset economic pressures, and (b) the continued strong demand for investors seeking to place their money in alternative asset classes.

In subsequent articles, Scott Hawkins, head of insurance research at Conning commented that “Given the favorable nature of the drivers of life settlement market growth, our analysis of the life settlement market is that the average annual volume of new life settlements over our ten-year forecast is approximately $5.2 billion.”

Based on the above, as well as our as our personal insight gained from more than 25 years of experience in the industry – our team at Asset Life Settlements is encouraged that the life settlement market is poised for continued growth over the long term.

Takeaways

The evolving consumer-first regulatory environment and the tightening of fiduciary standards have had an unexpected impact on the life settlement marketplace: Greater numbers of insurance and fiduciary professionals are recommending life settlements to seniors because selling the policy is often deemed in their clients’ best interests.

In order to effectively and competently represent clients who want to sell their policies, some financial professionals feel an obligation to gain first-hand experience with life settlement transactions – even to the extent of selling their own policies.

As 2023 approaches, financial and insurance professionals have an opportunity to examine their book of business and reach out to older clients who may be looking for strategies to generate extra cash flow.

In addition to optimizing the cash liquidity of a dormant asset, clients who qualify for a life settlement will eliminate an unwanted premium expense while receiving a cash windfall to achieve other retirement objectives.

Jeff Hallman and Scott Thomas are co-founders and managing partners at Asset Life Settlements, a life settlement brokerage company based in Orlando, Florida. Hallman can be reached at (888) 335-4769, extension 1108, and Thomas can be reached at (888) 335-4769, extension 1115.