The opportunity for your clients

The upside of a life settlement

A policy owner has the opportunity to invest the proceeds of a life settlement into a more suitable asset, or use the funds for other necessities of life, such as coverage of health care costs.

Some situations which may reflect a need for a life settlement are where:

• a replacement policy is needed due to a change in the size of an estate
• the premiums are no longer affordable
• a change happens in the status of a beneficiary (i.e. minor children are now successful adults who earn high incomes of their own) and the coverage provided by the policy is no longer needed
• funds are needed to cover the cost of long term care insurance
• a policy owner wants to reallocate the cash value and future premiums to other assets
• a divorce or bankruptcy occurs
• a company key person insurance policy is no longer needed
• the life insurance coverage is related to an obsolete buy/sell agreement
• the amount of life insurance coverage associated with an estate is no longer needed due to gifting
• a policy owner wants to fund a charitable gift

Estimates from a study conducted by the actuarial consulting firm Milliman U.S.A. show that approximately 88% of all universal life policies never mature to an actual death claim (Report on Life Settlements, National Underwriter, March 2004). It is believed that many of those policies just simply lapse. The life settlement process allows your client to tap into the potential value of an underutilized life insurance policy and subsequently reallocate that value to other more cost effective and suitable alternatives.

The Opportunity for Financial Advisors

Bringing New Products to the Client

A life settlement is a new alternative that a financial advisor can offer to clients who are owners of underutilized or unwanted life insurance policies. Life settlements offer financial advisors an effective way of allocating life insurance assets. They also afford the advisor the opportunity to provide heightened client service by incorporating new strategies in an existing financial plan. Also, the financial advisor can generate a supplemental revenue stream of commissions from life settlement transactions.

Life settlements also give financial advisors the opportunity to redeploy assets into a potentially more appropriate financial investment that meets a policy owner's current financial needs. Some examples of where life settlement proceeds might be reinvested are:

• Annuities
• Long term care coverage
• Alternative life insurance coverage

The Potential Market

The life settlements market continues to grow at a rapid pace.

Consider the following statistics and their impact on the growth of the life settlement industry:

• 47% of seniors over age 65 own life insurance. (Life Insurance Long View-Life Settlements Need Not Be Unsettling, Bernstein Research Call, March 2005)
• 59% of life settlement clients are between the ages of 71 and 80. (National Underwriter)
• Life insurance industry statistics show that 20% of a policy's face amount is the average payout to life settlement sellers. (Deloitte Development, LLC)
• In 2005 it was estimated that there was $13 billion of total life settlement business and the market is expected to grow to over $160 billion over the next several years. (Bernstein Research Call, March 2005)

In summary, when appropriate, life settlements can potentially present the client, as well as their financial advisor, with a significant financial benefit.