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Life Settlement

Amor Fati

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I was on my way to one of the biggest appointments I had ever made. I had been a Financial Advisor for less than two years, so my manager suggested I bring our Regional Vice President. I had not even made the turn out of the office parking lot when I boasted that I was not a salesman, I was an advisor. He told me to pull over.

He looked me in the eyes and said, “If you are not a salesman, quit now”. I was shocked. Didn’t Prudential want advisors? Didn’t they want people who did their best to educate clients to make the best decisions?

He shook his head and asked me how old I was. “Twenty-five, why?”

“If you want to earn a living, anywhere, you need to understand that you are a salesman. Attorneys have to sell themselves, CPAs have to sell themselves, barbers have to sell themselves. Of course we want you to give great advice, but at the end of the day, if you don’t sell yourself to your clients, they will buy from someone else and you will not make it in this industry.”

A few years later I had another appointment that I felt was above my skillset. This time I brought a fellow advisor who I had (and still have) immense respect for. We had discussed the case at length and prepared several illustrations and concepts that we felt could be strong suggestions for the clients based on the information we had. We went to the client’s house, I opened up my folder with all the work we did and five minutes in the husband said, “Do we really need to go through all this? We just want some Term Insurance for now.” Before I could open my mouth, the advisor I had brought replied, “Absolutely not, we can take an application this evening and discuss your other options at a later date.”

When we got back in the car, I was mopey. “Why didn’t you push for more permanent coverage or tell him some of the planning we went through?” He explained to me that sometimes we are order takers. Fighting with a client or telling them what to do is not only an easy way to lose a client but you are likely leaving them under-insured. If they need real planning, there are other “advisors” out there constantly bothering them. If you bother them, they will not do business with you today, or in the future.

So, what happened?

The first meeting went great. The RVP I brought answered all the questions the clients had and really helped to close the sale. The other thing that stood out to me about that appointment was that due to Prudential’s company policy, he did have to walk outside the room during the application signing.

A few years after the second meeting, the advisor I had brought on the meeting said that the clients had called him up and told him they were looking for me and ready to start talking about deeper planning. He ended up writing a policy that was near identical to one of the ones we had created years earlier. He had offered to put me on the case, but I was worried about my NDA at the time and settled for a nice steak dinner to celebrate.

I know that “Salesman” sounds sleezy and no one wants to think of themselves as an “Order taker”, but we need to embrace the fact that being salesy and taking orders is part of our jobs. Sometimes, it is the part of our jobs that is the best thing for the client. “Selling” a client insurance that has none, is better for that client’s family than teaching them about the different types of coverage without taking an application. Similarly, letting a client dictate what they want – even though your experience tells you it is not ideal – is better than fighting with them and letting someone else walk in that may not have the client’s best interest in mind.

Amor Fati translates to “love your fate”. I interpret it as an instruction to embrace all the aspects of what we do. Sure, we all love giving advice – especially when clients listen and heed it. And yes, it can be very frustrating when our advice is ignored. However, I would argue that being the best advisor means understanding that even in situations where advice is not heeded, being involved with the client is better than not.

For What It’s Worth: A Success Story

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If there is one thing we all come across, it is adverse selection. You know, the client who NEEDS to have insurance but only realizes it after he had a quadruple bypass last year and has a double digit A1C level.

“Well, what do you currently have in place?” you might ask him.

“I think I have a few policies I took out over the years, but I am not sure what is still around, and I don’t think they’re worth very much.” he replies.

“If you give me everything you have, I will see what I can do for you.” you conclude.

Two weeks later he hands you a stack of papers and you have no idea what your looking it. This is the exact point you should call our office. And this advisor did just that.

We received all 183 pages of the package in the mail two days later.

After sorting everything out we found two policies currently in force and four that had lapsed.

There is an old Whole Life policy his parents took out on him. It has a face of $15,735 and he has not paid premiums on it since the late 80’s. There was also a $500,000 15-Year Term policy he purchased 11 years ago with an annual premium of $1,474.

We started running conversion quotes on the Term and found that, at most, he could afford $100,000 of permanent coverage, and even that was going to double his current premium to $2,964 annually.

There is another option. We discussed it with the advisor and he went back to his client.

“Would you be interested in having your Term Policy Valuated?”

After explaining what it was and how the process worked, the client agreed to give it a shot.

We started the underwriting process to receive a Life Expectancy quote.

It took roughly two months to complete the underwriting process, which included gathering half a dozen APSs. His Life Expectancy was 7 – 10 years based on several third-party recommendations. We then sent his Life Expectancy and Conversion Quote out for purchasers to bid on.

We received our first bid of $60,000 about one week later. Unsatisfied, we waited. Slowly but surely the bids increased. $75,000, $100,000, $145,000… Eventually, the client decided to take an offer of $155,000 – it had been on the table for almost two weeks and was about to be pulled.

We requested the forms package and the day it arrived at our office, we were told one last bid came in. $185,000.

So, we requested the new forms.

After signing all the required documents, the purchaser wired the funds over to the client’s bank account.

The client will have to pay capital gains taxes on everything over $16,214 but should walk away with just shy of $160,000.

As an FYI, that is a 36% Internal Rate of Return on his Term Premiums.

The client is thrilled. Instead of paying $3,000 a year for $100,000 of permanent coverage, he now has $160,000 – sitting in his bank account – to do with as he wishes.

There is opportunity everywhere. If you have clients that do not seem to fit a mold that you are familiar with, that is ok, give us a call and we will see if there is a mold you might not be acquainted with.

Settlement Success Story

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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.