Episode Summary
The transcript covers an informative discussion about life settlements - a financial strategy that allows policy owners to sell their existing life insurance policy to an investor for a cash payout. It provides an overview of what life settlements are, their benefits, ideal candidates, the process, and why they are an overlooked opportunity for retirement income.
A life settlement provides an exit strategy for policy owners to get fair market value for a policy they no longer need or can afford. The client receives a lump sum cash payment upfront, is freed from having to pay future premiums, and the investor takes over premium payments until they receive the death benefit down the road.
Unfortunately, over $110 billion in death benefit lapses each year without any value returned to policy owners. But life settlements allow clients to capture value before lapsing a policy they no longer want or need. It provides an influx of funds that can be used to supplement retirement income or other financial needs.
Ideal candidates for life settlements are older individuals age 70+ who have experienced health changes since originally purchasing the policy. Permanent policies like universal life and guaranteed universal life over $200k in death benefits work best, but all policies can be evaluated for potential value. Even some term policies can be settled if first converted to permanent coverage.
The life settlement process takes approximately 3-8 weeks from start to finish. The client signs an application allowing the broker to gather medical records and policy details which are used to determine life expectancy and get bids from investors. The broker negotiates on the client's behalf to maximize the offer amount. Life expectancies of 8-10 years are ideal for investors. Once an offer is accepted, closing documents are signed to transfer ownership. The client receives their payout shortly after.
There are several benefits to life settlements for both clients and agents:
- Clients receive significantly more cash than the surrender value - often 80% or more extra.
- Clients no longer have to pay policy premiums, providing cost savings.
- Agents earn sizable commissions for providing this service.
- The policy benefit still gets paid out eventually.
- Clients receive a cash influx that can be used for other needs.
Yet despite these benefits, most clients are unaware life settlements exist. There is minimal public knowledge of this option. That's why advisors need to understand life settlements and identify clients where this could make sense. It allows them to provide significant added value by uncovering an underutilized asset.
Overall, life settlements provide an overlooked opportunity for retirement income that both clients and advisors should understand. It allows policy owners to unlock hidden value from a policy no longer needed before lapsing it and losing all value.
Timestamps
(0:00:00) - Broker Link podcast features Chris Newberry talking about life settlements
(0:00:58) - Chris Newberry: A lot of people are asking about life settlements
(0:02:34) - Life settlement is where a life insurance policy is sold to a third-party investor
(0:04:59) - Chris: What would be an ideal candidate for a life settlement
(0:09:44) - A free broker link can help you grow your insurance business
(0:10:37) - How generally, Ryan, are these policies valued? How do we look at them
(0:16:07) - How would an agent tee up a conversation about life settlements with their clients
(0:23:31) - A life settlement is a great opportunity for producers to earn commissions
(0:25:40) - Is there a special license that agents have to have to do life settlements
(0:27:52) - The best policies are universal life and guaranteed universal life
(0:33:48) - Chris: Ryan, this is a great space for agents. This is a way to ring the bell again
