Helping Clients Retire

 

As a trusted advisor, clients depend on you to help them make informed decisions regarding their finances and other important assets.

Whether you are a CPA, financial planner, trust officer, estate planner, attorney, life insurance consultant or other trusted advisor, it is becoming more evident that life settlements are an important new planning tool that benefits both the client and the advisor in many ways. There are no out-of-pocket costs to you or your client.

 

Get in Touch to See if Your Client Qualifies or Just to Learn More

 

 

Please call us at 317-863-5936 or toll-free at 888-849-0887 to learn how a life settlement or viatical settlement can be a valuable option for you and your clients or contact LSA with any questions, comments or suggestions regarding this website or the life settlement marketplace.

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Although post-retirement life can be filled with many blessings, a blissful exit from the working world is only achievable if the right financial plans are in place. Sadly, many Americans feel extremely unprepared for retired life. In fact, a recent report released by the Global Retirement Index found that 37% of Americans believe they will never have enough money to stop working entirely. Much of this anxiety can be attributed to increased inflation, rising interest rates, higher public debt, and a number of other concerning factors. 

So, what can advisors do? All good financial advisors know that it takes more than a retirement planning worksheet or retirement planning calculator to help clients work towards an enriching and purposeful life after retirement.  Oftentimes, those who are retired must start to consider working with their advisors to discover new strategies for maintaining a healthy income without extending their time in the workforce. 

Of course, advisors can encourage their clients to save more, or help them with taxes, but finding a way to put a substantial amount of cash in your client’s pockets is a bit more difficult. Even the most prepared and efficient retirement planner may overlook life settlements as an option to supplement retirement income. Really, life insurance policies are assets that can be bought and sold, just like a house or a car. 

To elaborate on this topic, we’ve created this life settlements and retirement guide. Here is a brief overview of what we will cover in the following sections: 

• Specific benefits of life settlements
• How life settlements function from an investor’s perspective
• Reasons you should consider life settlements for your clients
• Understanding the role of a life settlement broker
• Identifying a worthy life settlement provider 
• Reviewing the steps of the life settlement process

How Life Settlements Benefit Retirement Income Strategies

As a result of the 2020 pandemic and the economic strife that followed, many older Americans are being forced to retire with far less in their savings accounts. Additionally, the economic side effects of the COVID-19 pandemic will cause lingering damage to every American’s retirement account throughout the coming years. 

This situation presents a considerable challenge to advisors as they attempt to help their clients navigate less than ideal economic fluctuations. In light of these significant obstacles, choosing to pursue a life settlement is a simple and effective way to improve an elderly client’s liquidity and reduce unnecessary financial burdens. Here are just a few reasons why selling a life insurance policy is a reasonable option for most retirees: 

• Your client is no longer responsible for paying premiums, meaning less money comes out of their pockets each month. 
• Your client will receive a one-time lump sum cash payout as soon as their policy is sold. Although the exact dollar amount is different depending on the client’s specific situation, a life settlement payout can range from 10% to 25% of the policy benefit amount, according to SmartAsset.  
• You and your client can negotiate a deal that allows them to retain a set portion of their death benefit. This amount will come from the lump sum payout of the life settlement. 
• Life settlements offer your client a significantly greater profit than their policy’s surrender value. Although, it should be noted that the life settlement payout amount will be less than its death benefit.

Additionally, if your client does not wish to sell their entire policy, they can sell a portion of it. This is because life insurance companies typically allow policyholders to divide their policies into multiple parts. Although, we should note that this usually only applies to policies with a death benefit of $100,000 or more, but your clients can sell a portion of a policy while keeping a percentage for themselves.

In summation, the payout from a life settlement can be used to supplement a client’s retirement income, eliminate burdensome premium payments, and help your clients avoid placing further financial strain on their family. 

Life Settlements From an Investor’s Perspective

The best retirement strategies offer win-win solutions, and life settlements provide just that. From an investor perspective, life settlements are stable and lucrative opportunities—investors receive your client’s death benefit after the event of your client’s passing. Meanwhile, sellers receive a generous payout without much hassle. 

Since both parties benefit from the deal, interest in purchasing or investing in life settlements is unlikely to dwindle. This means that if your client chooses to sell their policy, they are likely to find a buyer fairly quickly. Although there are many reasons why life settlements are considered to be worthwhile investment opportunities, here are two compelling examples: 

1. Life settlement funds can be an effective hedge against market volatility.

Unlike other investment opportunities, life settlements are immune to market volatility and other external economic factors, making them very secure and appealing. 

2. Life settlements offer low-risk, high-yield ROI. 

Investing in life settlements offers reasonably high yield returns and has a lower exposure to fluctuating financial market cycles. Additionally, the life settlement industry continues to grow in size, giving investors many options to choose from. 

All in all, the life settlement market is very consumer-friendly and stable, making it an opportune financial avenue for all stakeholders. And with the huge return of capital to the life settlement industry and the fact that $200 billion worth of life insurance will lapse or be surrendered each year through 2027, there has never been a better time to pursue a life settlement. 

Reasons To Pursue a Life Settlement

So, why should a client eliminate their life insurance policy, and how could it benefit you as their advisor? There are more reasons than you might initially think. 

Their Premiums Are Too Expensive

Although your client’s life insurance premium payments may stay the same, their financial situation is likely to dramatically change once they enter retirement. This means premiums can become burdensome very quickly. According to data from the US Census Bureau, the average retirement income for retirees 65 and older is $47,357. Although this is a decent income for most retired individuals, any extra expense can cause unnecessary financial stress. Regardless of your client’s specific situation, premiums can quickly become too much to handle. 

Their Money May Be Better Served Elsewhere

Instead of paying a monthly life insurance premium, it might make more financial sense for your client to shift those funds into a high-return account. By pursuing a life settlement, you can help your clients invest that money elsewhere to increase their retirement earnings. Additionally, your client could use the money from their life settlement to help pay off debts. 

Your Client May Need Money for an Emergency 

If an emergency situation arises, the money derived from a life settlement could be applied to pay off those expenses, preventing your client from dipping into their savings accounts.  

Failing to Pursue a Life Settlement For a Client Could Result in Legal Trouble 

As an advisor, it is your duty to act in the best interest of your client. Because life settlements do offer extensive returns, an advisor who fails to explore life settlements as a viable option for their senior clients could be in breach of their fiduciary responsibility. 

Why Work With a Life Settlement Broker?

In the life settlement transaction process, three entities are involved: investors, providers, and brokers. In the list below we will explain how each of these parties function for you and your client as you attempt to sell a life insurance policy. 

• Investors work with a life settlement provider to purchase life insurance policies. 
• Life settlement providers purchase life insurance policies. Though some life settlement providers buy policies on their own behalf, most companies purchase policies for investors. Typically, providers buy the policies for the least amount of money possible and sell high.  
• Life settlement brokers represent the policyholders. Although many financial professionals are able to successfully broker a life settlement, all individuals must be licensed in their state and complete state-approved documentation in order for the deal to be accurately processed. 

Although working with a broker is not required to complete a life settlement, it is encouraged. Brokers are meant to serve your client’s best interest and help all involved parties to receive the best return on investment. In their supportive role, a life settlement broker helps with: 

• Sourcing deals with life settlement providers
• Guiding policyholders through the underwriting process
• Drawing up a contract
• Facilitating negotiations

In recent years, life settlement providers have pushed to purchase life insurance policies directly from policyholders, foregoing involvement from a broker. This is not the best decision for a number of reasons. 

1. Without intervention from a broker, the life settlement provider could offer your client a less-than-ideal price for their policy. Even though brokers do charge a commission, compensation for their services does not come out of your client’s pockets—it is a set percentage that is deducted from the life settlement proceeds. This also gives brokers a greater incentive to sell your client’s policy for the highest value. 
2. Life settlements are often complex and extensive transactions, and you simply don’t have the time to become an expert. Without an experienced life settlement professional advocating for your client, details can be missed, subjecting your client to unnecessary legal and financial risk.

Ultimately, a life settlement broker has the experience and knowledge needed to help you protect your client throughout a life settlement transaction and achieve the most beneficial outcome. 

Choosing the Right Life Settlement Provider to Work With

Although partnering with a broker is an excellent step to get the most out of a life settlement, you should still work to ensure that the life settlement provider is completely qualified before your client agrees to anything. Here are a few things to look for: 

Determine if the Life Insurance Settlement Provider Is Licensed

Working with a licensed life insurance settlement provider ensures that all approved and vetted processes are being followed, secures a fair deal for your client, and helps make certain that all aspects of the transaction are documented in accordance with established best practices. 

Only Work With a Life Insurance Settlement Provider That Is Bonded

Oftentimes states require a life settlement provider to be bonded so every transaction is guaranteed to be profitable for the seller. Issuing a bond means that the life settlement company has secured financing to cover costs if the seller (your client) is dissatisfied or files a claim against them. 

Determine if the Life Insurance Settlement Provider Has Appropriate Insurance

When it comes to insurance, the life settlement provider should meet state minimums. The provider should also have errors and omissions insurance to protect your client and the provider’s business. 

Make Certain That Your Client’s Privacy Is Protected

Although the life settlement provider will have control over your client’s policy once the sale is complete, you should ensure that the precise information the provider has access to is clearly defined in writing. Any qualified life settlement provider will automatically adhere to this process, as it is standard regulatory practice. 

Ultimately, the right life settlement partner is someone who listens, builds trust, and gets results for you and your clients.

The Life Settlement Process

The life settlement process is fairly simple for a financial advisor to navigate with a client, but it can be difficult for an individual to go through on their own. If you and your client choose to partner with Life Settlement Advisors, we will collaborate with you throughout the entire process to ensure that every detail is covered and understood, in order to make a more beneficial financial decision. Here is a basic checklist describing every step of the life settlement process:

Determine if Your Client Qualifies

In order to apply for a life settlement, your client must meet a specific set of qualifications. In this phase, your client should expect to answer questions regarding their health, age, gender, policy details, premium amounts, and the cash surrender value of their policy. If your client meets the criteria listed below, then they are likely to qualify for a life settlement. 

• Policy Type: The good news here is that most life insurance policies do qualify for a life settlement. For example, convertible term life, whole life, universal life, and second to die are all eligible policies.
• Policy Size: Your client’s policy must have a death benefit of $100,000 at minimum to be considered for a life settlement. Although, it should be noted that policies with a higher death benefit are more appealing to investors. 
• Policy Premiums: Typically, lower premiums are a more attractive option for investors. To qualify, your client’s premiums should be less than 5% of the face value of their policy. 
• Age: Although the ideal age for a life settlement is 75, to qualify, your client must be at least 70 years of age. 
• Life Expectancy: Since investors are responsible for paying your client’s premiums and will not receive the death benefit until your client passes, they prefer a shorter payoff period. Because of this, your client should have a life expectancy of 15 years or less to qualify for a life settlement.
• Health: Lastly, your client needs to have experienced a negative change in health since their policy was issued. To assess this, your client is required to work through a comprehensive health questionnaire.

To make this evaluation process less involved, you and your client can use tools like a life settlement qualification calculator to streamline the assessment and decision-making process.

Help Your Client Complete Their Application

After your client has determined if they qualify for a life settlement, then they can begin the application process. This application is used to assess your client’s policy and determine if it is eligible to be sold. Your client will likely need your help here since this is a highly involved process and accuracy is absolutely critical at this stage. Here is what to expect: 

• Policy Information: Your client will need to gather information regarding their life insurance policy, including details regarding the policy’s issue date, type, and the face amount. 
• Personal Information: Every application requires the policy owner’s legal name, marital status, social security number, and citizenship status to be listed. If your client is not a US citizen, different processes will need to be followed to sell their policy.  
• Medical History Information: Your client is required to offer documentation of their complete medical history over the last five years. This includes information regarding diagnosis and treatment for different health afflictions. Your client is also required to divulge details related to their medication use—including vitamins, over-the-counter medications, and prescriptions. Although your client will be asked to provide this information, a complete medical examination is not required.  
• Lifestyle Information: Every application will also require your client to provide information regarding their lifestyle choices. This includes details regarding their family size, alcohol and tobacco use, drug use, employment history, and other details.
• Family Health History Information: A life settlement application will also ask for details related to your client’s family health history. This includes information about their immediate family like parents, children, and siblings. 

Along with their application, your client will need to provide: 

• A copy of their life insurance policy 
• Their most recent annual statement 
• The policy illustration 
• A copy of their trust, if applicable 

Help Your Client Navigate the Screening Process

After the application and all other required documents have been submitted, everything will be examined to determine if it makes sense for your client to sell their policy. During this process, all submitted materials will be reviewed by third-party independent underwriters to allow for total accuracy. It is worth noting that underwriters specifically check to evaluate if your client’s life expectancy is accurately represented based on the information provided. 

Work With Your Client to Review Their Options

If your client’s application is approved, then their policy will be placed on the life settlement market. In this stage, investors begin to bid on the policy and determine their offer amounts based on the information provided with your client’s application. After the offers start coming in, the life settlement company you are working with will begin to send offers to your client. In this stage, you will work with your client to review the offers and determine which would be the most profitable. 

Help Your Client Navigate the Final Sale of Their Policy

After you and your client have determined which offer to accept, it’s time to enter the final stage of the sales process. Here, your client will receive a packet of closing information to sign and review. This packet includes: 

• The contract
• Disclosure documentation 
• Insurance verification 
• A signed statement indicating that your client is of sound mind
• A change of ownership form 

After completing all of this documentation, your client will receive their payout from the sale, and the investor will take over all premium payments. 

Help Your Client Prepare Their Taxes

Although the tax implications for a life settlement are fairly limited, it’s important to review these consequences with your client. Typically, your client will be required to pay taxes on any amount they receive that exceeds the amount they paid in premiums. As an advisor, your role is vital in this process since your client will likely need help understanding what is required to prepare for this tax implication. 

What Is the Most Important Thing in Retirement? Financial Stability and Security

How do you make a retired life meaningful? Discovering how to enjoy life after retirement can be an extremely emotional and stressful process for many seniors. And with so many intense life changes occurring all at once, finances should be the last thing for them to worry about. 

As an advisor, it is your responsibility to help your clients navigate the phases of retirement planning and secure a prosperous future. Whether you are a financial planner, CPA, trust officer, estate planner, life insurance consultant, or any other type of professional advisor, life settlements are a critical financial planning tool that offer extensive benefits to both you and your client.

With no out-of-pocket costs to you or your client, life settlements offer an affordable and straightforward method to improve your client’s retirement journey and increase their financial stability. Life settlements can also benefit you as an advisor. If you are working with a client who could gain from a life settlement, we can get you the compensation you deserve for spending your time and energy helping your client navigate the life settlement process. 

At Life Settlement Advisors, we are proud to help seniors unburden themselves from a hefty life insurance premium so they can enjoy financial freedom and experience a happy retired life. If you think your client is ready to explore the possibility of a life settlement, get in touch with us to learn more. 

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