A Life Settlement may be the most obscure tool in an Advisor’s toolbox. For many of us, it is likely because our carreers have at one time or another involved agency distribution, which often ban Life Settlements from an Advisor’s practice.
This lack of familiarity causes it to be overlooked even when it may be a great opportunity for a client.
We recently completed a settlement with an advisor that really illustrates the value a Life Settlement can have for a client.
The client is in his 60’s and has been battling cancer for the better part of a decade. Prior to his diagnoses he was earning a substantial salary and had purchased several Life Insurance policies, including a $1,000,000 Permanent policy with a $50,000 annual premium.
In his current state, the client can no longer work at his full capacity which has resulted in far less wages. The $1,000,000 policy had about $250,000 in cash value which would have kept the policy inforce for about eight years if he stopped paying premiums. The advisor also discussed surrendering the policy and since the cost basis was higher than premiums paid, there would be no taxable gain.
The third – and least discussed – option was a Life Settlement.
The client decided that the original purpose of the insurance was no longer the most important to him. He wanted to see how much cash he could get to help with liquidity to pay for every day expenses and his care.
Fast forward a few months and the client walked away with about double his cash value after paying the taxes associated with a Life Settlement.
A study was done in 2008 that showed seniors lapse at least $112,000,000,000 of Face Value every single year.
Life Settlements are not appropriate for everybody but in cases like this one, the advisor walks away a hero.
Do not let an old stigma or fear of the unknown stop you from utilizing a powerful tool at your disposal. Call us to discuss cases you think might be appropriate and let’s work together to give your clients the best options available to them.