life Insurance, policy, evaluations, life settlements, AUM, insureds

While you may know that life settlements can lessen the impact of expensive premiums on clients, you may not know that life settlements also can increase the amount of assets under management (AUM).

After more than 20 years, the fundamental transactions haven’t changed, but the industry has stepped up to streamline the evaluation process and make it easier for advisors and their clients to review life settlement options and plan for the future.

One of the shortcomings of life settlements has been the time it takes for a settlement provider to develop an offer for a client’s policy. A provider must look at the client’s overall health in order to develop a life expectancy. This means securing medical records, which must be evaluated by a team of physicians. In addition, a thorough analysis of the insurance policy must be performed. The premium load, age and rating of the policy must be reviewed to determine if the policy can be purchased. Many factors go into the decision of how much can be offered for the policy. Unfortunately, the process to secure such an offer can take several weeks.

Non-binding evaluations to the rescue!

While a complete offer can’t be determined without a detailed review, the overall viability of a life settlement can be determined through a policy evaluation which takes days rather than weeks to complete. An evaluation requires the following:

  • Basic information about the insured, such as age, gender and health at time of policy issue
  • Insurance policy details such as policy size, carrier financial strength, age and type of policy
  • A policy illustration
  • The life settlement provider will evaluate the policy’s potential for a settlement based on a number of factors. Those factors include secondary market conditions such as the relative supply and demand for similar policies on similarly-aged insureds.

    What the evaluation can’t do is assess the overall health of the insured. As this is a key factor in determining the viability of a settlement, the provider likely will offer an array of answers. For example, for insureds in very good health, a life settlement may not be an option. But insureds who are of average health may be probable candidates. Insureds who are in declining health may be ideal candidates.

    Many variables exist, so it is not as simple as saying the older or sicker the person is, the more likely they are a candidate for a life settlement. Investor groups often seek out similar policies and similar insureds, so the type of policy, its age and rating may have as strong an impact on the evaluation as the age and health of the insured.

    The policy evaluation offers a benchmark and quick test of viability that wasn’t available in the past. Clients then can use the evaluation to better understand how a life settlement, now or in the future, would be of benefit to them. They also can look to perform an evaluation every year in order to gauge the viability of a future settlement.

    For insureds interested in selling a policy immediately after an evaluation, the process is made quicker because the life settlement provider already has several key pieces of information in hand. Medical records will need to be ordered and analyzed, a life expectancy will be determined, and the provider will perform further analysis of the policy and premium requirements moving forward.

    The benefits for the client are varied:

    Reduce stress of paying premiums. In many instances, premium payments become burdensome for insured, particularly seniors who have retired and transitioned to earning a fixed income. In some cases, insureds save tens of thousands, or even six figures, in annual premium payments.

    Earn a payout when surrendering yields very little. In many cases, insureds who surrender a policy receive little in return as any accumulated value gets diminished by surrender charges.

    Turn a black hole into a liquidity event. In many instances, a life settlement turns a non-performing asset into a liquidity event for the insured. Proceeds from a life settlement can be used to purchase another form of insurance, to fund a better investment or to invest in a more efficient manner.

    Life settlement evaluations can bring forth new opportunities for advisors and their clients. They represent an easy first step to determining the viability of a life settlement and how advisors can help clients decrease the burden of unwanted premiums while increasing assets under management.

    Pre-qualify your clients for a life settlement in 48 hours with LifePASS™.