When a life insurance policyholder no longer needs their coverage, they have several options, such as letting the policy lapse, surrendering it for its cash surrender value, or opting for a life settlement. Life settlements often yield the highest cash proceeds, yet many are unfamiliar with this option. This underutilization suggests that policyholders might be missing out on a substantial financial opportunity.
As a life insurance agent, you are often the first point of contact for seniors considering the discontinuation of their life insurance policies. This position places you in a pivotal role to educate and guide them through their options, including the potentially lucrative choice of a life settlement.
Why Life Settlements Are Not Commonly Discussed
Despite their benefits, life settlements are infrequently discussed among life insurance agents due to several factors:
- Lack of Education and Training: Many agents lack comprehensive knowledge about life settlements. However, this can be remedied through state-accredited courses available online for continuing education credits.
- Concerns About Legality: Life settlements are entirely legal and have been since the landmark 1911 Supreme Court ruling in Grigsby vs. Russell, which recognized life insurance as private property that could be sold like any other asset.
- Insurance Carrier Resistance: Insurance companies historically prefer policy surrenders over settlements because they are financially less burdensome to the company. Surrenders generally result in lower payouts compared to the potential death benefits paid out in life settlements.
Benefits for Agents and Clients
For Agents:
Commission Opportunities: Referring clients to a life settlement broker can result in commissions if the policy is sold.
Ongoing Premium Commissions: If the life settlement firm keeps the policy active, you continue to earn commissions on the premiums they pay.
Enhanced Client Relationships: Assisting clients with life settlements can solidify your role as a trusted advisor, potentially leading to further business and referrals.
For Clients:
Immediate Cash Access: Clients can access a significant amount of cash quickly, which can be pivotal in managing expenses, especially medical and long-term care costs.
Financial Relief: Eliminating premium payments can significantly reduce financial stress, allowing more flexibility in budgeting and spending.
Ideal Candidates for Life Settlements
Life settlements are most suitable for policyholders over the age of 65 with permanent life insurance. Certain term policies may also qualify, particularly if they are convertible or if the insured has a terminal illness. Policies should have a minimum face value of $50,000, which can be a single policy or a combination of smaller policies.
The Importance of Discussing Life Settlements
Failing to discuss life settlements could lead to missed opportunities for both you and your clients. By informing clients about life settlements, you not only provide them with a potentially life-altering financial solution but also reinforce your commitment to serving their best interests.
For life insurance agents, embracing the concept of life settlements can expand your service offerings and help you better meet the diverse financial needs of your clients. Engaging with life settlement professionals and brokers can enhance your understanding and ability to facilitate these transactions, benefiting your practice and providing crucial support to your clients.
