The best financial professionals know it’s crucial to provide clients with safe and beneficial options for managing their assets. One potential option is life settlements. Many clients might be unaware of this alternative to letting a life insurance policy lapse or surrendering it for minimal value. Here, we explore why life settlements are a safe and valuable choice for your clients..
The Case for Life Settlements
Every year, $200 billion worth of life insurance policies are surrendered or lapsed, with 88% of universal life policies ending without a death benefit payout. Additionally, 90% of seniors who have let a policy lapse would have considered a life settlement if they knew it was an option. A life settlement can help clients avoid these financial losses.
What is a Life Settlement?
A life settlement involves selling a life insurance policy to a third party for its market value. The seller receives a lump sum payment larger than the policy’s surrender value and no longer needs to pay premiums, as the buyer assumes responsibility for maintaining the policy. This option is beneficial for seniors who no longer need or can no longer afford their life insurance policies.
There are typically two types of life settlements:
- Standard Life Settlements: Suitable for retired individuals over 65 with policies exceeding $100,000.
- Viatical Settlements: Designed for those diagnosed with a terminal or chronic illness, often yielding larger payouts.
7 Reasons Why Life Settlements Are Safe
- The United States Supreme Court has established life insurance as personal property that the policyowner can sell.
- Forty-three states and Puerto Rico have regulations in place that provide significant protection for consumers concerning the sale of a life insurance policy. Nine of those states require insurance companies to disclose alternatives to lapsing or surrendering a life insurance policy when a policy is in jeopardy of lapsing, including the life settlement option.
- As a show of support for life settlements, in 2019, the National Conference of Insurance Legislators reaffirmed its commitment to ensuring that life insurance policyholders are informed that life settlements are an option to lapsing a policy.
- The National Association of Insurance Commissioners (NAIC), which is comprised of the top insurance regulators across all 50 states, five territories, and the District of Columbia, has endorsed life settlements as a way aging adults can pay for long-term care costs and other healthcare expenses.
- In all buy 7 states, life settlement providers must be licensed by the Insurance Department of the state where the policyowner resides.
- Your client’s financial and health information must be kept secure by the life settlement company per multiple regulations, including HIPAA regulations. The company must provide a HIPAA authorization form stating how any information collected is used.
- Because life settlements are legal and fully regulated in states where 90% of U.S. residents live, they are recognized as a safe—and tremendously valuable—alternative to letting a policy lapse or surrendering it for considerably less than it might be worth in a life settlement.
Financial Benefits of Life Settlements
For many clients, a life settlement can provide significant financial relief:
- Immediate Liquidity: Life settlements offer a lump sum payment, which can be used to pay off debts, cover unexpected expenses, or improve quality of life.
- Elimination of Premium Payments: Clients no longer need to worry about ongoing premium costs.
- Investment Opportunities: The lump sum can be invested to generate additional income, particularly useful in combating inflation.
Addressing Longevity Risk
Longevity risk, the danger of outliving one’s assets, is a growing concern among seniors. Regularly reviewing life insurance policies can help clients understand their options. Many seniors are surprised to learn that life settlements pay out on average four times or more than a policy’s cash surrender value, significantly enhancing their financial stability.
Planning for Long-Term Care
With a high likelihood of needing long-term care, it’s crucial to plan for associated costs. Life settlements provide a substantial lump sum payment that can help cover these expenses, offering financial security and peace of mind. Innovations in the market have expanded eligibility, allowing even healthy seniors to benefit from life settlements.
Life settlements offer a safe, regulated, and financially advantageous option for clients who no longer need or can no longer afford their life insurance policies. By considering life settlements, financial advisors can help clients unlock the value of their policies, providing immediate financial relief and long-term stability.
For more information, use the Life Settlement Estimate Calculator or contact Lighthouse Life to discuss with one our life settlement experts.
Consult Lighthouse Life
For financial professionals: If you are interested in learning about our Life Settlement Advisor Program or are working on behalf of a client, please complete our financial professionals form and a team member will reach out to you.
