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Why Aren’t More Agents Talking About Life Settlements?




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Many agents have never discussed life settlements with a senior client. Why is there such a lack of enthusiasm for this important financial planning tool? To begin with, not every agent is authorized to speak with a client about the life span settlement option. Despite the fact that an existence settlement may be in the client’s best interests, insurance provider or broker/dealer prohibitions bar the door for such agents. Let’s look at some additional possibilities.

1. “I’m just not familiar with the notion of a life span settlement.”

Agents require further training in these transactions in order to feel comfortable discussing them with senior customers. Until recently, no training was offered. In certain states, at least two life settlement providers have training programs approved. For the time being, industry training is still available. It is the responsibility of life settlement brokers and suppliers to give training. The goal is to build connections and offer a full service that includes remuneration.

2. “I’m waiting for the problem to arise in the future.”

If you haven’t mentioned it, a client may grumble about the yearly life premium he just received in the mail, but he’s likely never heard about an existence settlement. Life settlements are not covered by traditional news channels. Business editors and producers are perplexed by the notion or recall hearing about people losing money in viatical (terminal sickness) settlements. As a result of the news blackout, the senior never hears the term “life settlements” and has no idea how to approach an insurance agent with the inquiry.

Unfortunately, many senior policyholders are orphaned and without a service agent. Their only point of contact is with the issuing firm, essentially guaranteeing that you will not be offered with the option of a life settlement. “Has your daily life insurance plan been examined recently?” simply ask a customer who could be entitled for an existence payout. That is a query that will be worth its weight in gold.

3. “I am in charge of assets. I don’t work in the insurance industry.”

This is a typical criticism from broker/dealer financial advisors who are unaware that an insurance plan, like a mutual fund or stock and bond portfolio, is a focal point that must be managed. If you’re a wealth manager and don’t comprehend your client’s life insurance holdings, you might be jeopardizing other assets. Not all investments work out as planned. Poorly performing investments are often sold and replaced with new ones. A contract for life insurance might potentially perform poorly. Perhaps, at the outset, the insurance was a good idea. A policy depiction was provided with an unattainable anticipated interest rate. The shown cash values and maybe the death benefit may no longer be secured by the planned premium.

A yearly policy review with current ledger graphics should be performed by an insurance expert or financial adviser to ensure that policy premiums are sufficient to maintain expected cash values as well as the death benefit. The assessment of the insurance policy may also raise the question of whether the coverage is enough. Policy management also covers issues like as replacement, insurability, and potential tax implications.

4. “For replacement, I like to propose a 1035 swap.”

This argument indicates that the agent will be unaware of the value created by the life settlement, as well as the tax implications. According to the Life Insurance Coverage Settlement Association, over half of all life settlement profits are used to purchase new policies. Is a 1035 exchange preferable than a sale in a life settlement deal if new insurance will be purchased?

There are no existing tax implications for a 1035 exchange. The previous life contract’s basis is transferred to the new contract, and the old policy is exchanged for the new policy at cash surrender value.

When the revenues from the sale of a life insurance policy exceed the policy’s cost basis, there may be a tax consequence. However, to make the comparison fair, the after-tax proceeds should be compared to the cash surrender value of the existing policy. There is no one who pays a tax rate of 100%. In addition, after-tax gains from a sale are frequently more than the money surrender value. Obviously, a compensation for existence should be more than the financial surrender value. As a result, a qualified senior has more money available to purchase a home.

This is a completely new policy. In the past, an existence settlement has been worth between 200 and 300 percent more than cash surrender prices. While each situation is unique, comparing 1035 exchanges to a potential life settlement is the best method to go about insurance replacement.

5. “I’m not sure how a fair market price is established.”

As previously stated, the difference between the cash surrender value and the fair market price of a policy is substantial. Customers and sellers in real estate negotiate a reasonable market price. The provider sets a single price, the buyer replies with a reduced price, and the price level is somewhere in the middle.

Use the secondary market’s competitive bidding mechanism to create contrast. The highest bidder is able to make a current settlement offer. Wouldn’t it be great if you could get ten potential customers to bid on your home as a way to invest in your daily life insurance policy? The cash value of a policy represents a single buyer’s offer – the issuing insurance provider. Do you think this price will be greater or lower than the competing bid?

The value gap is created by any bad health arbitrage. Insurance premiums are determined by the insured’s age, gender, and health at the time of application, and subsequent health changes should not be expected or considered. In the secondary market, a buyer looks at the insured’s existing health insurance and how health issues impact life expectancy. It has an inverse link between policy value and policy life duration.

6. “I’m not sure how you’re going to promote the product.”

The senior who is normally 70 or older and has developed a health condition since the insurance application date is the target market for life settlements. Institutionally sponsored life settlement providers purchase policies with a two-year to 12-year life period for the insured. It’s possible that direct marketing to elders you don’t know will be unproductive.

So long as there are other subjects on the table, an economic seminar is absolutely an opportunity to address these transactions with the appropriate audience. It’s far too small a topic to become the focus of attention. Not every senior possesses a life insurance policy, not every policyholder qualifies, and not many are considering canceling their coverage. With a quick statement that it must be a brand new concept that may produce income from the dormant asset, the life span settlement issue will make an excellent bullet point on the seminar program.

If senior lectures aren’t for you, there are a variety of other marketing options to explore. Approach CPAs, estate attorneys, and trust officers in your network and present yourself as an authority on life settlements. Most likely, they have never heard of life settlements or have only a rudimentary understanding of them. You’ll boost the value of their service offerings and introduce them to a new concept, placing yourself in a good position to recommend them.

Point out that policies owned by corporations and trusts, as well as policies owned by individuals, may be eligible for sale. This may pique the interest of potential clients. You can write about life settlements in a local business publication, but make sure your byline contains your contact information. Additionally, you may wish to advertise life settlements to people that provide additional services to seniors, such as senior healthcare or senior activity planning. Provide a monetary incentive to encourage them to recruit prospects for you.

Finally, contact the alma mater’s or nearby university’s planned giving officer. Life insurance is commonly given to universities as a gift. Most people would rather have the money now than wait years to get an edge. An existence settlement allows the university to get cash right now. The institution may probably send a letter to alumni reaching 70 years old encouraging them to make donations from the income of superfluous or undesired life insurance plans. The tax deduction for donated assets is unquestionably the asset’s fair market value. The tax deduction for your monetary contribution of a life settlement policy will be greater than the tax deduction for the policy itself.

Selling a brand-new financial service takes knowledge, familiarity, competence, preparation and innovation, dedication, and execution. It’s not too late to add life settlements to your product portfolio. Remember that the first Baby Boomer, who will reach 70 in 2016, will be followed by millions upon millions of others.

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