At a recent conference, we were stunned when we asked the agents, advisors and registered reps in the audience if they would recommend the life settlement option to a client. A number of participants said they would like to do so — and many indicated they had actually seen cases where their clients would have truly benefitted from selling an unwanted, unneeded or unaffordable life insurance policy on the secondary market — but couldn't because their insurance company or broker-dealer did not allow participation in the life settlement market.
This has been an ongoing issue for years. Independent and captive agents or representatives of large carriers or broker-dealers operate at the behest of their employers or employee contracts, some of which ban participation or even discussion of the life settlement option to their clients. We are of course not advocating that agents or reps violate contract or employment law; we are simply trying to get to the core of why the carriers and B-Ds won't allow such discussion or disclosure.
Aside from "protocol won't allow for it," carriers' concerns range from the impact of lower lapse rates on profitability to potential loss of tax-free buildup of cash value within the policy to suitability concerns and due diligence issues. B-Ds cite the risks associated with increased compliance burdens and FINRA standards as reasons for not allowing participation.
Understandable, if this were 2006.
