What Advisors (And Everyone) Need To Know
About Life Settlements
April 24, 2015 (San Francisco) by Carole S. Fiedler
Most financial advisors I speak with have heard of Life Settlements, but do not fully understand how they work. They are not sure how their clients can benefit or even how to recognize when a Life Settlement should be considered. Many “captive” insurance agents are prohibited from even mentioning the Life Settlement option, though they are fully aware that a life settlement’s large lump sum liquid payments can greatly benefit both the agent and especially the client.
What are Life Settlements?
A Life Settlement is the sale of an in-force life insurance policy, for an amount discounted from the face value by an insured 65 years of age or older, and who does not have a terminal illness.
Life Settlements create liquidity from a previously illiquid asset – the underlying life insurance policy. By liquidating a life insurance policy at the right time, options are created while other assets that may be less beneficial to liquidate can stay in place. One example would be selling one policy to provide funds for premium payments to maintain another policy.
It’s a fact: As people age their need for life insurance changes. Policies are often obtained to protect a spouse, to cover college costs of the children, perhaps make mortgage payments or pay off the outstanding mortgage on the family home. As we age, children graduate college and mortgages get paid off. Needs for insurance change.
Who can benefit from Life Settlements?
Anyone fitting the criteria, who wants cash, no strings attached, in exchange for an unneeded, unwanted or unaffordable life insurance policy.
Life Settlements can be utilized as a strategy to create client liquidity for new investment opportunities. At a time when many are able to start enjoying life more, a life settlement can eliminate cost of premiums while providing a lump sum cash infusion.
Proceeds from a life settlement can provide funds for medical needs such as in-house home care, an assisted living facility, gifts to children, a long desired vacation or simply to help make one’s life easier. Certainly, if an elderly insured is also ill, with a life expectancy of two years or less, any policy sale should be done as a viatical settlement in which case the transaction would be tax free.
So why have financial & legal professionals failed to embrace and capitalize on an opportunity that supports their clients’ needs and goals by recommending life settlements?
Lack of awareness, lack of knowledge and not understanding how to proceed properly without jeopardizing the best interests of the client, is my best guess. Advisors need to be properly educated so they understand how life settlements work and how they can help their clients create liquidity and build wealth by selling an unnecessary life insurance policy.
Are life Settlements Legal in all states?
It’s important to know that, as the life settlement industry evolved, so did regulations of it. Today, we are indeed strictly regulated in 42 States!
Licensed Life Settlement professionals do exist and the public needs to know how to seek us out! (HINT: Google “Life Settlement Specialist” Or “Life settlement expert.”) In addition to advisors needing to be properly educated, a general lack of consumer awareness exists.
The majority of the public, financial and legal professionals included, have a general lack of awareness/understanding of how life settlements work. Further, the early days of the industry were extremely problematic and many people remember this. But that was before regulation. Today, Life Settlements are regulated in 42 States. The industry is solid and there is a huge amount of capital available to purchase policies. I would definitely call this time a Policy Seller’s Market.
What is the difference between Life Settlements and Viatical Settlements?
This industry grew out of the original Viatical Settlement industry. Viaticals began about 1989, while the first life settlements began in 1996*. There are many common misconceptions about Life Settlements stemming from the fraudulent operations of the past, specifically from approximately 1995-2001-ish**. The false impression that Viatical Settlements are just for people with AIDS is a belief many have, even though this was never true! A Viatical Settlement is for anyone of any age with an estimated “life expectancy of 24 months or less.” And thanks to HIPAA, the Health Insurance Portability and Accountability Act of 1996, proceeds from a Viatical Settlement are tax-free!
Advisors need to know:
– Life settlements are a viable option for clients with unneeded or unwanted life insurance.
– If a policy becomes unaffordable, a Life Settlement should be considered.
– A partial policy sale may be available in which case the client retains some insurance while selling part of a policy. Either way, obtaining a policy evaluation before a decision is made is wise.
– Life Settlement transactions are regulated by the State Insurance Commissioner
– Life settlements ARE NOT only for the terminally ill (That’s what a viatical settlement is).
– Not all Provider companies are the same. Methods, criteria and settlement offers vary.
– Term policies can be settled in many instances.
– Any unneeded, unwanted, unaffordable or superfluous life insurance policy, over $100,000 should be considered.
How can you, as a trusted Advisor or diligent consumer, recognize when it might be the right time to seek out the advice of a trained life settlement specialist?
– Clients who plan to let coverage lapse should call me to obtain a free policy appraisal.
– In a Divorce settlement, a life insurance policy’s secondary market value should be considered
– Has your client (or their spouse, parents, children) been diagnosed with a serious, terminal or chronic illness? If so, the timing of a sale is most important. Speak to a viatical settlement specialist.
– Are you or your client over-insured?
– Do you have someone who is caring for elderly parents? Do they need help with financing this care so they do not deplete their own savings? A life settlement on the parent’s policy may be the answer.
– Do you represent a company with a retiring executive who has a Key-Man Policy?
– Is money owed to someone? Does the person owing the debt have a life insurance policy which can be settled?
Any time a policy is going to be let go, for whatever reason, it only takes a phone call to discover if it is worthy of being looked at as either a Life Settlement or a Viatical Settlement.
These are a few examples of the many ways an in-force life insurance policy can be liquidated to enable the insured to accomplish something of great benefit to them in their lifetime, different from what was originally anticipated. No matter what the reason, the criteria and process is the same. The insured must be over 65 without a terminal illness or, of any age with a terminal illness. A person between the ages of 65 – 75 should have significant health conditions for the case to qualify but I urge you to call me at 800-905-0114 to be sure.
Lastly, when seeking out a life settlement specialist, know that experience, industry knowledge and relationships all matter.
Who can I speak to to learn about Life Settlements?
What I’ve written here is just a start. There are many times this is a viable option and I am happy to provide a FREE POLICY APPRAISAL at any time. I welcome your calls and questions!
Carole – 1-800-905-0114
*The New York Times wrote about the beginning of life settlements and published it on September 27, 1998. The story was 8 months in the making. http://www.innovativesettlements.com/wp-content/uploads/2014/02/nytimes__color.pdf Expanded version: http://www.nytimes.com/1998/09/27/business/death-benefits-now-for-the-living.html
**To read up on the history of the settlement industry, I recommend this Chicago Tribune in-depth article, located at http://articles.chicagotribune.com/2004-07-04/news/0407040350_1_viatical-mutual-benefits-policies. It was this in-depth investigation that brought the same writers to my door, resulting in this story: http://www.innovativesettlements.com/wp-content/uploads/2014/02/tribune_-_berens_500.pdf
Carole Fiedler is the Founder and President of Innovative Settlement Solutions located in Greenbrae, CA and has been a respected member of the Life Settlement industry since 1992. She can be reached at 1-800-905-0114. www.InnovativeSettlements.com InnovativeSettlements@gmail.com
