Most life settlements are facilitated primarily by insurance advisors with the help of a life settlement broker, but selling a trust-owned life insurance policy (ILIT) in the secondary market often requires a prior nod of approval from the client's estate planning attorney and tax advisor.
That's why gaining the confidence of estate attorneys and CPAs is an essential step for insurance advisors who want to achieve the best possible outcomes for clients selling their policies in the secondary market.
So how do insurance advisors engender trust and build rapport with estate and tax planning professionals — some of whom have a pivotal role in deciding whether a life settlement is the best course of action for their clients?
One advisor's "secret sauce"
To learn the answer to that question, I turned to an insurance advisor with whom I had just completed two life settlement transactions involving trust-owned life insurance (ILIT) policies. The advisor, whom I will call John Stone in order to protect his clients' privacy, has more than 45 years of experience in the insurance and financial services industries, and is widely regarded for his expertise in advanced planning strategies.
During my recent interview with Stone, he explained that his clients are typically successful business executives and retired business owners, many of whom purchased large life insurance policies years ago when the threshold for the estate tax exemption was much lower.
The combination of Stone's professional credentials (ChFC®, CLU®, CAP®), his hands-on expertise with high-end clients, and the relationships he has built with estate planning attorneys and CPAs, earned him wide recognition as one of the most knowledgeable professionals in his field. When he recommends a life settlement as the best solution for unwanted policies, his clients have complete faith in his judgment.
"Frequent communication and setting reasonable expectations are essential to building trust" Stone said. "I make it a priority to be transparent with my clients and their estate planning advisors in order to provide a clear understanding of all the options for troubled life insurance policies. Engaging 'buy-in' from the client's other advisors at the outset of any financial services transaction is key to building valuable collaborative relationships."
To illustrate best practices for agents, this experienced advisor highlights a life settlement transaction he spearheaded for a 77-year-old retired medical professional. (Photo: iStock)
Under-promise and over-deliver
To help illustrate what he considers to be best practices for agents, Stone shared the highlights of a life settlement transaction that he spearheaded for Client A, a 77-year-old retired medical professional. The case involved a $1 million secondary guarantee policy owned by Client A's Irrevocable Life Insurance Trust (ILIT). Stone had been conducting annual reviews of the policy's performance, and had advised the client going back seven years that the policy would be in trouble a few years down the road. Subsequent to that time, the premiums had grown to nearly four percent a year, and the cash intended to fund future premium payments was becoming depleted. The time had come to take action.
Following a recent policy analysis, Stone noted that the cash in the policy was down to less than $1,000. He outlined two options for the client:
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- Make the annual premium of $37,000 to keep the policy in force; or
- Pursue a life settlement.
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Considering the fact that the policy was no longer needed for estate tax purposes, Stone recommended to the client and to the estate attorney that a life settlement appeared to be the most sensible option. Trusting Stone's judgment, the client agreed without hesitation.