For financial advisors and wealth managers, the constant challenge is uncovering opportunities that bring additional value to clients, especially those in or nearing retirement. One often-overlooked asset in a client’s portfolio is a life insurance policy that may no longer serve its original purpose. In many cases, that policy can be transformed into a financial asset through a life settlement, offering an unexpected source of liquidity and value.
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What Is a Life Settlement?
A life settlement is selling an existing life insurance policy to a third-party investor for more than the policy’s cash surrender value but less than its death benefit. The investor assumes responsibility for premium payments and, in return, collects the death benefit when the insured passes away. The policyholder receives a lump sum payment at the time of sale, which can be used for retirement expenses, healthcare, debt reduction, or estate planning.
For clients over the age of 65 who have a policy with a face value of $100,000 or more, life settlements can be a strategic solution, especially if the policy is no longer needed, wanted, or affordable.
An Untapped Opportunity for Financial Advisors
Too often, life insurance policies are lapsed or surrendered without advisors or clients knowing that a life settlement is a viable alternative. According to industry research, billions of dollars in potential life settlement value go unrealized every year. Financial professionals who recognize this opportunity can bring significant value to their clients and stand out as forward-thinking advisors.
Life settlements are particularly relevant in the following scenarios:
- A client’s estate planning needs have changed
- Premiums have become unaffordable in retirement
- The client no longer needs coverage due to financial independence
- A business-owned policy is no longer necessary after ownership changes
In each of these situations, a life settlement provides an avenue to convert a dormant policy into an active asset.
Enhancing Retirement and Estate Planning Strategies
In today’s economic environment, many retirees are looking for ways to boost their retirement income or cover rising healthcare costs. Life settlements offer immediate liquidity that can be reinvested or used to improve the quality of life.
For example, proceeds from a life settlement can:
- Supplement long-term care expenses
- Eliminate costly premium obligations
- Strengthen an income stream in retirement
- Support gifting strategies or charitable donations
Rather than letting a policy lapse with no return, a life settlement can provide a lump sum that may better serve the client’s current goals.
Fiduciary Value: Doing Right by the Client
As fiduciaries, advisors are obligated to act in the best interest of their clients. That includes informing them of all viable options related to their assets, including life insurance. By introducing the concept of life settlements, advisors empower clients to make informed decisions about policies that may no longer be aligned with their financial plans.
Importantly, discussing life settlements can also help protect client trust. If a policy is surrendered or lapsed without considering a life settlement, clients or their heirs may later learn that they forfeited significant value, leading to regret and reputational risk for the advisor.
Getting Started with Life Settlements
The process of pursuing a life settlement starts with a policy appraisal to determine if it qualifies. Advisors can work with experienced life settlement brokers who handle underwriting, policy analysis, and the bidding process. The goal is to obtain competitive offers from institutional investors who purchase these policies.
Transparency, regulatory compliance, and client education are key throughout the process. A reputable life settlement provider will support both the advisor and the client with clear communication, fiduciary alignment, and full disclosure.
Final Thoughts
Life settlements represent a powerful, underutilized strategy that can enhance financial plans and unlock hidden value in a client’s portfolio. By proactively discussing this option with the right clients, financial advisors uncover new opportunities and reinforce your role as a trusted advisor.
