LIFE SETTLEMENTS
Driving revenue from page 44
There are numerous opportunities to use life settlements as a tool to drive recruitment , retention , and renewals of business for agents and advisors .
The 3Rs
The life insurance industry faces numerous challenges including high policy abandonment rates , the impact of fluctuating markets and interest rates , political tides that impact both tax laws and definitions around suitability and fiduciary standards , and shifting demographic / economic trends across the U . S . population . Helping to address these challenges , there are numerous opportunities to use life settlements as a tool to drive recruitment , retention , and renewals of business for agents and advisors .
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Analyzing a book of business for policies that are in danger of being abandoned can generate unexpected income for a policy owner and revenue to an agency while increasing renewal and residual income levels . Opportunities that could be explored in advance of a policy being abandoned would come from discussing a settlement ahead of these points in a policy ’ s lifecycle : a . Term Conversion b . Lapse Pending c . Surrender ( full or partial ) d . Roll-Over Rescuing orphan policies and engaging the policy owner to explore creative new opportunities with their asset , opens the door to potential new business with them and referrals to family members and others . Policy owners who want to get out of underperforming UL ’ s , Life Settlements provide an exit strategy that could free up liquidity to reposition into more productive vehicles addressing their financial needs .
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Policy owners who have not adequately planned for the eventuality of increasing health and long-term care expenses as they age could find a financial lifeline from their life insurance policy through an LTC-Life Settlement under tax-favorable conditions for their extended care needs . Policy owners who can ’ t afford to keep a policy in-force but want to maintain death benefit protection , a Retained Death Benefit ( RDB ) life settlement will allow the policy owner to hold onto a reduced death benefit without paying anymore premiums . This option can also be combined with a portion as a cash settlement as well . Policy owners considering rolling over CSV into an annuity may be able to obtain a higher market value for their policy through a life settlement which would give them more liquidity to fund an annuity and / or other financial vehicles to meet their needs . Policy owners that purchased policies for estate tax purposes prior to enactment of the Tax Cuts and Jobs Act ( TCJA ) in 2017 , may be carrying policies that are currently unneeded based on the higher estate tax limits of $ 12.06M per individual . But , as the law is currently written , the lifetime exemption will drop to $ 6.2M per individual at the end of 2025 .*
* As with all things political , 2025 is a long time from now and this outcome could be subject to change
Highest value
The highest and best use for a life insurance policy is the financial protection it provides for an insurable interest . But should the owner of that asset consider other uses for their policy ’ s market value if the interest for which the policy was taken out no longer exists ? I most certainly will always argue for the fiduciary obligation to provide people with all pertinent information from which to make a well-informed financial decision .
Life settlements play an important role as a financial planning tool for seniors or those with impaired health . A policy owner is always better off to get the highest value for their asset over potentially lapsing or surrendering their policy for far less .
46 Perspectives Q4 2022