Life insurance settlements offer ethical independent agents the opportunity to help their over-insured clients evaluate the asset value of whole, universal and convertible term life insurance policies. In the right circumstances agents earn commissions when policyholders cash out by selling the policies to legitimate investor groups. Particularly the elderly, sick or retirees with changed personal circumstances often have pressing needs for cash within their portfolios. Also, life insurers will soon be responsible for informing customers about options such as life insurance settlements and accelerated death benefits, according to a model act recently passed by the National Conference of Insurance Legislators.
In 20 years the life settlements segment has grown to more than $6 billion annually. Insurance agents are the key, client facing and with a wealth of information about policyholders and their personal and family situations. Settlement partners receive agent applications, process and underwrite them and prepare settlement offers with sources of capital prepared to purchase the policies for cash. Here are some tips on how to start offering life settlements to your clients
Life insurance settlements have become an increasingly viable financial option in recent years for several reasons. First, baby boomers represent the best-insured generation of all time. Many boomers purchased life insurance to protect spouses and children or for estate tax reasons. If a husband purchased a life insurance policy to financially protect his wife and children, for example, the policy may have become unwanted or unneeded once the children have grown or if the marital status has changed. Recent changes in estate tax law have made some life insurance purchased for that purpose unnecessary
Another reason for life settlement’s growing popularity is that the elderly insured simply need cash. It’s an open secret that many Baby Boomers have little or no retirement savings set aside. Prior to life insurance settlements, unneeded or unwanted insurance often lapsed and most of the value of the policies was lost.
When your clients express updated needs such as these, agents can turn to life settlement companies currently looking for individuals with policies that match these traditional circumstances.
Step 1: Run the Numbers for Your Agency
Insurance agents can envision their roles in the burgeoning business and get started with an estimate of the potential, based upon the number of brokers, a review of potentially eligible policies in their database and a reflection on the personal circumstances of key policyholders. A simple spreadsheet calculation indicates twelve brokers, each converting an average one $500,000 policy per month at 2-4 percent commission could mean as much as $3 million additional agency revenues per year.
Step 2: Reflect on Your Potential Market
Seniors 65 or older with at least $250,000 in life insurance coverage, or younger policyholders with shorter life expectancy, are prime candidates. Your initial client consultation would determine if their estate planning factors have changed, making current life insurance policies unneeded or burdensome. A life settlement appraisal requires you to complete a simple application and obtain permission to access the policyholders’ medical records.
Step 3: Integrate Life Settlements into Your Product Mix
As with life insurance, equities and other financial services, agents who decide to offer life settlements will likely undergo an orderly process to fully understand the products and processes, train and install metrics and build relationships with settlement partners and investors. This process can include:
- A review to determine agent potential, construct a management plan and set financial targets that result in the agent’s final decision to engage.
- Training and education in life settlement products and a formal integration strategy with the agent’s other products and services, complete with tactics, a timeline and metrics to evaluate progress.
- Initial contact with the agent’s database, prioritizing customers with the greatest potential needs, leveraging marketing materials and resources to target specific niches.
Step 4: Build Your Own Settlements Network
Once agents have made the decision to offer life settlements to their policyholders, they sign a letter of intent with a settlement partner, undergo training and begin to contact top priority clients to submit applications.
From the agency standpoint, life settlements become an important integrated revenue source. In addition to the commissions earned, the process opens opportunities for new life insurance policy sales or alternatives such as estate planning with the same clients. Today there is limited competition as agents are just awakening to the demographic goldmine of Baby Boomers. However, in the medium term, life settlements can also help counterbalance life insurance cycles and provide financial as well as insurance solutions to client portfolio needs.
In the course of your professional life you have helped your elderly clients amass a pile of ‘chips’ they’ve used at each stage of their lives. Now, you can be there waiting at the cash window for those who are interested in cashing out.