Those of us who have worked with consumers to develop and execute a personal financial plan can attest that there is something truly rewarding about helping a family achieve its financial goals. An advisor's highest calling is to analyze a client's personal finances, discuss their objectives and then educate them about the options available in order to accomplish those objectives, while acting in the best interests of the client.
Of course, financial advisors clearly understand and are well-schooled in financial planning itself, so the reality is that advisors need to know how they will personally benefit – either financially or otherwise – from recommending various strategies for their clients. This is an important topic to discuss as it relates to possible choices for clients' life insurance policies that may no longer be needed or affordable, including possibly selling the policy through a life settlement.
According to a 2014 study by WealthManagement.com, the vast majority of financial advisors are either unfamiliar with life settlements or are familiar with them but have never recommended them to clients.
At the same time, nearly 50 percent of advisors agreed that clients who plan to let their life insurance policy lapse should consider selling that policy. This disconnect suggests that many advisors are simply unaware of how life settlements work and how they can benefit their clients.
In addition to the benefits to clients, advisors themselves can also benefit from recommending the life settlement option to appropriate candidates.
The primary benefit is that life settlements present an opportunity for your clients to liquidate an asset in their portfolios and put that new cash to work for either their cash flow needs or for other investments you may wish to include in the rebalancing process. This provides a vehicle for financial advisors to advance client portfolios and bring more assets under management.
When they enter into a life settlement, life insurance policy owners realize an average of seven times the amount of the policy's cash surrender value, based on an analysis of a 2010 survey of the life settlement market by the U.S. Government Accountability Office. Our research shows that Americans who are aged 65 or older leave approximately $112 billion in benefits on the table each year by lapsing or surrendering their life insurance policies. A life settlement is one option for capturing some of those benefits, rather than forfeiting them back to the insurance companies.
There are a variety of additional benefits to financial advisors from recommending the life settlement option to appropriate clients, such as the following:
1. Competitive differentiation – helping your clients turn unwanted or unaffordable life insurance policies into new cash for their portfolios can be a powerful way to differentiate yourself from other advisors.
2. Enhanced relationships – you can become known as a trusted expert in holistic financial planning, an increasingly valued process that considers the potential value of all assets in portfolios, including life insurance policies.
