Financial advisors should reconsider life settlements given economic volatility

With a potential recession underway and Americans taking a closer look at their plans for retirement, advisors play a critical role in providing the right guidance. Current retirees are among the most vulnerable demographic, as the majority are living off a fixed income being stretched far too thin given recent increases in consumer prices.

Though the life settlement industry has been around for decades, life settlements continue to be an under-tapped source of funding for eligible seniors. This is due to common misconceptions, such as the myth that life settlements are only for the terminally ill. There is also unwarranted concern that the industry isn’t well-regulated. In fact, the life settlement industry has come a long way and is highly regulated in most US states. This means that financial professionals can safely and confidently recommend selling a life insurance policy to those in need of additional retirement funding.

Reasons to recommend a life settlement
Financial advisors play a critical role in ensuring the financial stability of their clients, especially during times of financial distress. With $200 billion in life insurance being lapsed or surrendered each year, life settlements could be the key to giving today’s seniors the retirement they deserve. Below are the top reasons advisors must keep this strategy in mind:

Increased industry regulations
The life settlement industry has evolved tremendously over the years and is now highly regulated, providing optimal transparency for policyholders and protection for insurance carriers. Previously, insureds, agents, advisers, life settlement brokers, life settlement providers, and life settlement funds lacked access to the same information. As a result, the policyholder would only receive a handful of offers that likely wouldn’t yield the highest offer.

Today, 43 U.S. states and Puerto Rico regulate life and viatical settlements. Life settlement providers and companies must disclose details of transactions, including what the broker will earn on the sale and how the settlement may affect the policyholder’s income taxes and eligibility for assistance, such as Medicaid.

More recent advancements in machine learning technology have allowed for additional industry growth and expansion. Advisors can now use a life settlement calculator to evaluate their entire book of clients in a matter of minutes and identify which would benefit from a life settlement, as opposed to waiting months for individual estimates. Increased regulations and cutting-edge automation make the life settlement decision process easier than ever so advisers can understand their client's full financial picture in minutes and provide the right guidance when it’s needed most.

Your fiduciary responsibility
Given the fact that a life settlement can provide clients with financial relief, agents have a clear fiduciary responsibility to inform them of life settlements being an option. Knowing that a client is eligible for and could benefit from a life settlement makes you responsible for sharing this option as viable. Life settlement brokers, rather than providers, also have a fiduciary responsibility to get the highest possible bid for the client.

For example, a policyholder who’s already considering surrendering or lapsing their life insurance should know that a life settlement yields more cash than the cash surrender value. The same is true for clients who need to raise cash for unexpected expenses, such as increases in healthcare or assisted living costs. With inflation greatly impacting retirement-related expenses, clients should know that their life insurance could be a valuable liquid asset.

Monetization opportunities
Life settlements are truly a win-win for you and your client. Not only do they give the insured access to funding, but they also offer referral fees for broker-dealers. Most life settlement companies and brokers will compensate those who recommended them after the transaction is closed. Additionally, once the sale has concluded, financial professionals can and should provide guidance on how to reinvest that money based on the client’s current financial standing.

Life settlements have the potential to solve America’s retirement crisis
Inflation rates are quickly becoming a major threat to once-hopeful retirees. With a quarter of Americans currently expecting to delay their retirement due to rising consumer costs, financial advisors play an invaluable role in guiding their clients down the right path. And with dramatic industry advancements and increased transparency, the life settlement industry offers a secure solution to Americans looking to live out the retirement they’ve worked so hard for.

Lucas Siegel is the CEO of Harbor Life Settlements and Harbor Life Brokerage, which offers a life settlement auction site and an AI-powered life settlement calculator.

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