Three Reasons Why Wealth Management Professionals Should Consider Life Settlements
For many wealth management professionals working with high net worth individuals, coming up with new strategies to protect assets is simply a must. At the moment, life settlements provide an opportunity for people to cash in their life insurance policies and free up capital that’s may be entrapped in a life insurance trusts that is irrevocable. Life insurance settlements are, not a new concept. In fact, they have been around for nearly 20 years.
Although each life policy is unique, there are many situations where the idea of selling a policy might provide a variety of benefits. So how does this work? It’s actually simple. Life settlements are designed to allow people, mostly seniors, to sell their life insurance policy in an open market in exchange for some immediate cash. Although the seller will get a payment that’s relatively less than the death benefit, it will be higher than the surrender value. Also, there will be no need to make any premium payments once the life insurance is sold.
Why would someone buy a life insurance policy from someone else? Well, the benefit for the buyer will come in form of the death benefit payout that will be disbursed once the person insured passes away.
There are many reasons why a senior may choose to sell their life insurance policy. It could be because they can no longer afford it or perhaps because they no longer need the policy. But there are also other additional scenarios that make the idea of selling an insurance cover more sensible.
We have listed some of them below:
It’s Possible to Convert Term Insurance to Permanent Insurance Before Selling as a Life Settlement
Term insurance is widely used by many people. Most people buy it with the hope that they will never need it. But you may be able to benefit from a cash windfall from your term insurance especially if it’s nearing its end. You can work with life settlement providers to evaluate the term policy where you will have the option to convert it to a permanent insurance such as Universal Life and benefit from a life settlement. This can lead to a substantial payout.
Third-Party Evaluations Are Required for ILITs and This May Lead to a Life Settlement
ILITs or irrevocable life insurance trusts can lead to life settlement if a trustee performs the required evaluations and determines that a life settlement is in the best interest of the beneficiary. Although ILITs still offer a way to help high net individuals preserve their wealth and manage taxes, the life insurance policies held by the trusts may not perform at a satisfactory level due to the tapped investable capital.
Financial advisers who fail to provide education to the clients on the possibility of life settlements might be sued for damages. A recent lawsuit in California has already set legal precedence. The suit targeted Lincoln National Life Insurance Co. for failing to disclose life settlement options to their clients.
The popularity of life settlements is growing and even though it may not be applicable for all financial situations, it’s a real option for life insurance holders. It’s, therefore, important for a wealth manager to be aware of the possibilities offered and how they can leverage on these settlements for the benefit of their clients.
Contact our life settlement team today for more information on your life settlement and viatical options.