As a financial professional, having an older client let their life insurance policy lapse can be extremely frustrating. Knowing what they’ve paid in premiums over the years and their family will never benefit seems like a terrible waste of money.
Even though a client may have a logical reason for letting a policy lapse (i.e., their mortgage is paid, they can no longer afford the policy, their term coverage is ending), there is a much better alternative than simply letting the policy fade away. It’s called a “life settlement.”
What is a life settlement?
A life settlement is the sale of a life insurance policy for its market value. The former policyholder receives a cash payment larger than the policy’s surrender value, and they’re no longer responsible for premium payments because the buyer of the policy becomes responsible for maintaining the policy.
In some instances, a policyholder can retain a portion of the death benefit in lieu of selling the full death benefit. This can be useful if your client is no longer insurable but wants to keep some life insurance in force for a specific need, like final expense payment.
Policies that older clients typically sell through a life settlement are permanent policies, such as whole life or universal life insurance. Term life policies that are convertible to permanent life insurance policies can also be viable options for life settlements.
Why consider a life settlement?
Depending on what stage your client is at in life, there are some circumstances when you should consider a life settlement for them:
- Provide them with cash for a policy they can no longer afford and remove the monthly expense from them.
- Replace lost income due to retirement, disability, or other unexpected life events.
- Provide working capital for their business that had taken a life insurance policy out on someone who has retired or left the company.
- Help them pay off debt from a mortgage, loans, or credit cards they don’t want to carry during their retirement years.
- Provide liquidity to help pay for unanticipated healthcare expenses that Medicare and their supplement don’t cover, such as long-term care or home health care.
As you can see, there are some significant benefits for the right client at the right time. However, there are a few caveats for you to be aware of:
- The former policyholder’s beneficiaries will no longer receive the death benefit
- In certain cases, there is the potential for tax liability
- The proceeds from a life settlement might make a client ineligible for Medicaid or other financial assistance
Why partner with Lighthouse Life?
In addition to having a senior leadership team experienced in the life settlement industry, an unwavering commitment to compliance and ethics, and an A+ rating with the Better Business Bureau (BBB), Lighthouse Life provides:
- No additional licensing requirements
- Diverse funder relationships
- Professional liability coverage for the financial professionals we work with
- Offers in as few as three business days
Call us today at 855-230-0800 to learn more about life settlements for your clients.
