SB Central Records

With the recession affecting insurance brokers as aversely as it has affected the rest of the country, there has never been a better time to consider life settlements as an option for both your clientele and yourself.

Without question, many of your clients are among the 30,000 Americans who turn 65 everyday, and many more of your clients will reach that milestone in the coming few years. Approximately 47 percent of those age 65 and older carry a life insurance policy and many of them no longer need or want those policies or are paying premiums they can no longer afford.

But still, you’ve hesitated on life settlements. Perhaps you don’t believe the hype – that your clients have hundreds of thousands of dollars sitting in their desk drawer. Perhaps you don’t know any life settlement specialists or how to contact one. Perhaps you think the time, effort and paperwork involved aren’t worth your while.

Taking the time to understand how much cash life settlements can bring your clients and yourself, however, should persuade you that it is not fiscally responsible to continue ignoring the benefits of life settlements.

I recently had the opportunity to work with a reticent life insurance broker whose experience changed his perception of life settlements entirely. I hope his story will make you reconsider your opinion of life settlements, or consider them for the first time.

Pennies on the Dollar

At a recent presentation I gave to a group of insurance professionals, a broker approached me with the case of a 72-year-old client whose health has deteriorated since purchasing his coverage eight years ago. As is the case with so many retirees nowadays, this gentleman had seen the money he had expected to live on in retirement dwindle as his portfolio suffered in the wake of the collapsing financial market.

He did, however, have a universal life policy with a death benefit of $1 million. The policy’s premium had recently risen more than 25 percent to almost $25,000 a year as a result of poor performance, and the policy was on the verge of lapsing. The broker was seriously considering advising the client to surrender the policy back to the provider, which would have netted the client $110,000 in cash surrender value. Both the broker and the client considered this a more than reasonable deal, and certainly better than nothing. After all, they reasoned, what was wrong with having a six-figure check on a policy that otherwise would be worth nothing shortly after the premium payments ceased?

The simple fact, though, is that settling for the insurance company’s offer would have been a disservice to both the client and to the broker as this broker learned from our presentation. The client’s age, life expectancy and policy size made him seem like an excellent life settlement candidate.

The Process

One of the broker’s primary misgivings regarding the life settlement option was the potential time involved in the process. For the client, every day was precious and neither party wanted to be involved in a lengthy procedure with an uncertain outcome.

Fortunately, the life settlement process is much easier than most people realize. Generally speaking, the process takes only 90 days from beginning to end. The day after our meeting, the broker sent me his client’s policy information and we were able to commence the life settlement process immediately.

In addition to collecting and reviewing the policy information, the life settlement process consists of the following steps:

During the process, reputable life settlement companies keep the referring insurance brokers and clients informed regarding process on a weekly basis and offer complete transparency at each step.

Time Well Spent

Due to the client’s particular situation, underwriters were very interested in purchasing his policy. After several days of negotiation, the offer was $415,000 – nearly four times the insurance company’s cash surrender value. The life settlement broker received a six percent fee from the funder on the $1 million death benefit ($60,000), which was shared with the insurance broker at a predetermined split, making the deal lucrative for everybody involved.

It is important to remember that proceeds from a life settlement can be used to dump into a new policy to lower ongoing premiums, purchase long-term care insurance, invest in an annuity or any number of other insurance and/or investment vehicles. This in turn provides the opportunity for a life insurance broker to increase his or her bottom line yet again.

If you are not advising clients of the life settlement option, you are under serving not only them, but yourself. In this difficult financial era, life settlements provide a significant source of income to you and a new avenue to explore on your clients’ behalf to increase your value to that client.

John Yaker is president of Baltimore-based Quantum Life Settlements. He can be reached at (410)327-9550 or by writing john@quantumlifesettlements.com.