Life Settlements involve life insurance policyowners selling their policies to secondary buyers. Settlement purchasers are largely financial institutions and hedge funds, but additional buyers have emerged in this industry.
The Life Settlement market has continued to grow in 2019 and all indications are that this trend will continue. Not only are blocks of Life Settlement polices attractive to institutional buyers, they have also become popular as an Alternative Investment so there is flurry of capital available to purchase eligible policies. Buyers are purchasing policies today at lower anticipated ROI’s than ever before. According to the Life Insurance Settlement Association, more than 250,000 policies with a combined face amount of over $57 billion is lapsed annually by US seniors over age 65, and these are just the permanent plans. If term life is added, the total exceeds $112 billion. 1 This is a very timely topic and one that others will be having with your clients if you don’t address this with them.
So, why is this important to P&C Agents?
For several reasons:
- P&C Clients may be lapsing policies that they could have sold and turned a policy into additional assets for their clients.
- P&C agency’s may have clients that reach out to competitors for advice on their life insurance.
- Most P&C agencies have life licenses so getting a settlement license is relatively easy.
- The policy review process will help the P&C agent learn more about their client’s insurance policies and identify further opportunities to either replace policies that are not financially structured properly or open opportunities to further discuss the client’s needs.
- The P&C agency could materially help their clients while participating in a new form of compensation with little change in the P&C agent’s behavior.
How does the settlement process work for a P&C agent?
First and foremost, the P&C agent needs to identify a senior policyowner of a life insurance policy, whether term or permanent. This can be done by simply asking clients whether they own life insurance. If the answer is yes, then further asking if the policy has been reviewed lately is a natural follow up question. If that answer is no, then inquiring as to if they would like to have their policy reviewed by a professional would be the logical next step.
At this point, it is critical for the P&C agent to have established a relationship with a Brokerage General Agent(BGA) or advisor that they:
- Trust, and
- Is well versed and established conducting life insurance reviews.
The P&C agent should then obtain a copy of an annual statement on the policy in question and supply this policy information to the BGA or advisor referenced above. The appropriate BGA or advisor partner will then collect all information necessary to review the policy and provide insight as to how that policy is performing and generally whether the policy is a settlement possibility.
If the policy appears to be a settlement prospect, the P&C agent should locate a settlement broker that conducts the following process:
- Has proprietary HIPAA form signed
- Collects all medical records on the insured
- Obtains at least one life expectancy report on the insured
- Packages the entire file and sends out to the Provider market in an auction capacity
- Remains transparent throughout the entire process to keep the advisor and client informed.
When a Life Settlement is appropriate, it can have a dramatic effect on the policyowners life. Obtaining a meaningful settlement on an asset considered to be a cash flow liability is a unique service that will create loyalty amongst all involved. The P&C agent will once again be considered a valuable asset and respected advisor to that client and their family. And, the settlement transaction can be financially rewarding for the P&C agency.
The author, Michael R. Smith is the author of Tread Lightly, A Guide To Life Insurance To The Affluent Client, and a Principal with TFP Brokerage, an Atlanta based life insurance Brokerage General Agency. He can be reached at mike@tfpbrokerage.com or by phone at 678.338.4384.
- Lapsed Life Insurance Policies: An Astounding Number
By Darwin Bayston, CFA, President and CEO, LISA/February 24, 2015