Many older Americans need cash. One way they can get cash is to sell a life insurance policy, through a life settlement.
Some clients who hear about the idea of a life settlement may ask you: Are life settlements safe and secure?
The answer is yes: Life settlement transactions are among the safest and most secure financial transactions in both the insurance and financial services markets.
One reason is regulation.
Today, 90% of U.S. citizens live in states with laws and regulations that protect seniors and their loved ones when the seniors are selling their life insurance policies.
Among the consumer protections are requirements that life settlement companies be licensed with the insurance department of the state in which the policyowner lives. Life settlement companies must use approved forms, and they must provide the policyowner with extensive disclosures about policies and transactions involved, including a discussion of the alternatives to life settlements, and a review of the risks related to selling a policy.
In addition, life settlement companies are required to protect the privacy of policyowners and sellers.
As a result of regulatory protections, and life settlement companies’ own efforts, only two consumer complaints regarding life settlements have been reported to U.S. insurance regulators since 2015.
That’s pretty amazing for a senior financial services transaction.
Here are steps your clients can take to make life settlement transactions even safer.
1. Clients should work with individuals and companies that are reputable and transparent.
This is particularly important for a client pursuing a life settlement transaction, because a life insurance policy is one of the most valuable assets most seniors own.
2. Clients should work only with individuals and companies licensed in the state in which they reside.
In many cases, the companies advertising life settlements do not have to be licensed, but, when the companies advertising the life settlement process send a policyowner’s information to a life settlement company, the life settlement company itself must be licensed. Note that the company doing the advertising is usually required to mention the names of the licensees that might get the policyowner’s information. The company doing the advertising might have to disclose the name of the licensees on its website as well as in other forms of advertising.
3. Clients should offer policies to more than one licensed life settlement company provider before they agree to sell.
Getting multiple appraisals can yield a larger payout for the policy. And the value of any life settlement accepted must be greater than either the policy’s cash surrender value or any accelerated death benefit that may be available.
4. Clients should understand the transaction costs.
While many state laws require disclosure of commissions and fees, compensation transparency requirements are not uniform. Some brokers and others take egregious commissions that significantly reduce the amount a policyowner might receive. Policyowners and advisors should work only with companies that disclose the fees, commissions, and other costs that could impact the size of the payout to the policyowner.
5. You and your clients should understand how any life settlement companies and intermediaries will handle the clients’ personal information.
For example, does a company involved in a transaction require a signed HIPAA authorization form as part of the policy appraisal process? Does the form clearly detail how the health information gathered will be used? Does the form say how long the company will retain the data? Satisfactory answers to questions like these help demonstrate a company’s commitment to keeping your clients’ data safe.
And, of course, clients should maximize their own personal financial security by including the value of life insurance policies in financial portfolio reviews.
A life insurance policy may turn out to be one of the most valuable assets a senior owns. Selling a policy could provide cash your client can use to pay unexpected bills, bolster retirement savings, or do anything else your client wants to do. One reason a life settlement can be so helpful is that there is no restriction on what a client does with the proceeds.
Mike Coben is the chief distribution and business development officer at Lighthouse Life, Conshohocken, Pennsylvania.