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By Larry Simon
The growth associated with life settlements in recent years has led to a surge of new financial professionals entering the marketplace. Such growth has increased the need for quality sources of education on life settlements, including how to begin and maintain a successful life settlement practice. For financial professionals looking to begin working with life settlements, it's important to understand when life settlements are appropriate, as well as the best way to carry out a life settlement transaction with an eligible client.
Determining eligibility
When working with life settlements, the best place to start is to become educated on appropriate transactions and which clients might benefit from this financial option. Life settlements -- a financial transaction where a senior sells his or her life insurance policy to the secondary market for an immediate cash payment -- is a financial planning option that can benefit seniors facing a number of situations, including retirement planning, changes in estate-tax laws and the desire to donate to charity. While the transactions prove beneficial for many senior clients who are looking to deal with life insurance policies that are no longer needed or are underperforming, they aren't for everyone. For example, life settlements are not for those who still need their current life insurance or another level of life insurance, but cannot obtain new coverage because they are suffering from catastrophic or life-threatening diseases, which render them uninsurable.
It's important to keep the following eligibility requirements in mind when considering an existing or prospective client for a life settlement:
If a client is deemed eligible for a life settlement transaction, financial professionals should next consider the client's current insurance situation, including existing coverage and future coverage needs. Clients whose insurance needs are not currently being fulfilled, or who have policies that have significantly underperformed expectations and illustrated values, are appropriate candidates for whom to consider conducting a life settlement. The financial professional's first step is to compile the necessary client and policy information so the existing life insurance policy can be evaluated in the secondary market. This includes the insured's medical records (usually covering a range of between three and five years), typically two life expectancy underwriter evaluations, an in-force policy illustration from the issuing insurance carrier, client authorizations and a life settlement application.
The financial professional will work with the insurance carrier and life expectancy report providers first to obtain the life expectancy report and illustration, as the turnaround time usually takes weeks. Once these reports have been received, they should be added to a case application, including requisite disclosures sent for pricing and review by the life settlement company. The life settlement company will review the documents and provide a bid based on policy characteristics and the insured's health information. It's then up to the financial professional and the client to determine whether or not to accept the bid. If the policyholder decides to accept the bid, he or she will relinquish all ownership and benefits associated with the policy and all premium payments are taken over by the investor. Upon the death of the insured, the institutional investor or designated beneficiary (usually a trust) receives the policy death benefit.
Working with a broker or provider
An important part of creating and following an effective and successful sales strategy is determining whether to work with a broker or directly with a life settlement provider, as well as understanding the difference between both options.
A provider is an organization that issues bids and purchases policies on behalf of its institutional investors. Brokerages, on the other hand, aggregate and submit life settlement cases to providers on behalf of the client. Because life settlements are a specialized segment of the life insurance industry with market-specific regulatory requirements, it's imperative for financial professionals to evaluate their experience and needs before deciding with whom to partner.
Financial professionals should consider the following factors before selecting a broker or provider:
Financial professionals should also consider the following key characteristics after deciding to work with a broker or provider:
Brokers should have:
Creating and following a plan
For financial professionals who are just entering the market, or for those who are looking for new ways to increase clientele, understanding the life settlement process, as well as the best companies to work with, can help foster success and client satisfaction. Understanding the factors mentioned above can help with this process, while providing important tips for working with clients who might be eligible for life settlements. By following these tips, those interested in the financial transactions will be able to create and follow a sales plan that will work for their business.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.
Determining eligibility
When working with life settlements, the best place to start is to become educated on appropriate transactions and which clients might benefit from this financial option. Life settlements -- a financial transaction where a senior sells his or her life insurance policy to the secondary market for an immediate cash payment -- is a financial planning option that can benefit seniors facing a number of situations, including retirement planning, changes in estate-tax laws and the desire to donate to charity. While the transactions prove beneficial for many senior clients who are looking to deal with life insurance policies that are no longer needed or are underperforming, they aren't for everyone. For example, life settlements are not for those who still need their current life insurance or another level of life insurance, but cannot obtain new coverage because they are suffering from catastrophic or life-threatening diseases, which render them uninsurable.
It's important to keep the following eligibility requirements in mind when considering an existing or prospective client for a life settlement:
- Candidates typically must meet a minimum age of 65 or older. Most appropriate female candidates are over the age of 75 and appropriate male candidates are over the age of 72.
- Policies must be at least two years old and beyond contestability.
- Policies are typically universal life (individual or survivorship); however, many companies accept other types of policies including whole life and term contracts.
- Average minimum aggregate face value of polices is $250,000. Some companies will accept policies with face values as low as $50,000.
If a client is deemed eligible for a life settlement transaction, financial professionals should next consider the client's current insurance situation, including existing coverage and future coverage needs. Clients whose insurance needs are not currently being fulfilled, or who have policies that have significantly underperformed expectations and illustrated values, are appropriate candidates for whom to consider conducting a life settlement. The financial professional's first step is to compile the necessary client and policy information so the existing life insurance policy can be evaluated in the secondary market. This includes the insured's medical records (usually covering a range of between three and five years), typically two life expectancy underwriter evaluations, an in-force policy illustration from the issuing insurance carrier, client authorizations and a life settlement application.
The financial professional will work with the insurance carrier and life expectancy report providers first to obtain the life expectancy report and illustration, as the turnaround time usually takes weeks. Once these reports have been received, they should be added to a case application, including requisite disclosures sent for pricing and review by the life settlement company. The life settlement company will review the documents and provide a bid based on policy characteristics and the insured's health information. It's then up to the financial professional and the client to determine whether or not to accept the bid. If the policyholder decides to accept the bid, he or she will relinquish all ownership and benefits associated with the policy and all premium payments are taken over by the investor. Upon the death of the insured, the institutional investor or designated beneficiary (usually a trust) receives the policy death benefit.
Working with a broker or provider
An important part of creating and following an effective and successful sales strategy is determining whether to work with a broker or directly with a life settlement provider, as well as understanding the difference between both options.
A provider is an organization that issues bids and purchases policies on behalf of its institutional investors. Brokerages, on the other hand, aggregate and submit life settlement cases to providers on behalf of the client. Because life settlements are a specialized segment of the life insurance industry with market-specific regulatory requirements, it's imperative for financial professionals to evaluate their experience and needs before deciding with whom to partner.
Financial professionals should consider the following factors before selecting a broker or provider:
- Knowledge of licensing requirements in the state where business is conducted
- The ability to obtain necessary documents required for submission of case evaluations
- An established track record of closed cases
- An existing network of relationships with reputable providers
- The presence of infrastructure to support the life settlement transaction process for eligible clients
Financial professionals should also consider the following key characteristics after deciding to work with a broker or provider:
Brokers should have:
-
* Significant industry experience
* Extensive state licensing
* Existing relationships with top industry providers
* Current membership with the Life Insurance Settlement Association (LISA)
-
* Transacted at least $2 billion in aggregate face amount
* Institutional investor relationships
* A management team with life insurance industry experience
* An existing in-house legal team
* Extensive state licensing
* Current membership with LISA
* A high agency rating
Creating and following a plan
For financial professionals who are just entering the market, or for those who are looking for new ways to increase clientele, understanding the life settlement process, as well as the best companies to work with, can help foster success and client satisfaction. Understanding the factors mentioned above can help with this process, while providing important tips for working with clients who might be eligible for life settlements. By following these tips, those interested in the financial transactions will be able to create and follow a sales plan that will work for their business.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.
