Financial advisors and insurance professionals spend years getting to know their clients. You understand why a life insurance policy was originally purchased, how it fits into a broader financial plan and what the client hoped the coverage would accomplish.
But a lot can change over the life of a policy.
A policy purchased 10, 15 or 20 years ago may have made perfect sense at the time. The client’s health may have been different. Their estate may have been larger. Their business may have needed the protection. Their children may have depended on the death benefit. Their retirement picture may have looked completely different.
As those circumstances change, the role of the policy can change with them.
At SFS Life Settlements, we believe this is where advisors can provide tremendous value simply by recognizing when it may be time to take another look at an existing policy. A life settlement won’t be appropriate for every client or every policy, but there are certain changes that should at least raise the question.
Could this policy have value in the secondary market?
You don’t need to know the answer. That’s our job. You just need to recognize when it’s worth asking.
Here are seven situations that should put a potential life settlement on your radar.
1. Premiums Are Becoming Difficult to Justify
Life insurance premiums that once fit comfortably within a client’s financial plan can become increasingly difficult to justify as circumstances change.
Perhaps the client’s retirement income is different than expected. Maybe the cost of maintaining the policy has increased. Or the client may simply be looking at the premium relative to their current financial priorities and questioning whether continuing to fund the policy still makes sense.
When that happens, surrendering the policy or allowing it to lapse may appear to be the obvious solution.
Before making that decision, it’s worth determining whether the policy has value somewhere else.
A life insurance policy is an asset, and in the right circumstances, an institutional buyer may be willing to purchase it for more than the carrier’s cash surrender value. Rather than simply ending the premium obligation, a life settlement may give the client an opportunity to unlock value from an asset they have funded for many years.
The important thing is to explore that possibility before the policy disappears.
2. The Insured’s Health Has Changed
A change in health is another important reason to reconsider the value of an existing life insurance policy.
It may seem counterintuitive, but a decline in the insured’s health can make a policy more attractive in the secondary market. That means a policy that may not have qualified for a meaningful settlement several years ago could potentially be worth revisiting today.
This is one of the reasons advisors shouldn’t assume that a policy has little market value simply because it was evaluated previously or because the client hasn’t considered a life settlement before.
Life settlement value isn’t static.
Age changes. Health changes. Buyer appetites change. Market conditions change. A policy that wasn’t a fit for the secondary market at one point may present a different opportunity later.
If a client’s health has changed significantly since the policy was purchased or last reviewed, it may be worth asking SFS to take another look.
3. The Client No Longer Needs the Coverage
Many life insurance policies accomplish exactly what they were originally designed to do.
The interesting question is what happens afterward.
A policy may have been purchased to protect young children who are now financially independent. It may have been intended to replace income during the client’s working years, but the client is now comfortably retired. An estate-planning strategy may have changed, or other assets may now provide enough financial security that the original death benefit is no longer necessary.
None of that means purchasing the policy was a mistake.
It means the client’s life changed.
When the original need for coverage disappears, the conversation often turns to whether the client should continue paying premiums. But there is another question advisors should consider before recommending that the policy simply be surrendered or allowed to lapse:
Does someone else value this asset?
If the answer is yes, a life settlement may provide another way for the client to benefit from a policy that has already served its original purpose.
4. A Business Has Been Sold or the Owner’s Role Has Changed
Business-related life insurance is another area where changing circumstances can create opportunities that are easy to overlook.
A business owner may have purchased life insurance as part of a buy-sell agreement, key-person strategy, succession plan or other business-continuity need. Years later, the company may be sold, partners may change, debt may be paid down or the insured may retire from the business.
Suddenly, a policy that once played an important role may no longer be necessary.
The natural reaction may be to surrender it.
But before doing so, the owner and their advisors should understand whether there is value in the secondary market.
This is especially relevant because business transitions often involve broader conversations with CPAs, attorneys, wealth managers, insurance professionals and other advisors. Recognizing the life insurance policy as another asset that deserves review can add an important dimension to that planning process.
5. The Client’s Estate Plan Has Changed
Estate plans evolve.
Tax laws change. Asset values change. Family circumstances change. Trust structures change. Charitable intentions change. Strategies that made sense years ago may be replaced as the client’s financial life becomes more complex or, in some cases, simpler.
Life insurance is often an important component of those strategies, which means it should also be part of the conversation when an estate plan changes.
If a policy is no longer needed to accomplish its original estate-planning objective, don’t assume its only remaining value is its cash surrender value.
There may be an opportunity to reposition the value of that asset toward something that better reflects the client’s priorities today.
That could mean retirement income, healthcare expenses, another investment, charitable giving, family support or simply greater financial flexibility.
The point isn’t that one use is better than another. It’s that the client should understand the available options before deciding what to do with the policy.
6. A Term Conversion Deadline Is Approaching
Term insurance can be particularly easy to overlook because many clients and advisors understandably think of it differently from permanent insurance.
A term policy may have little or no cash surrender value. As the end of the term or a conversion deadline approaches, the client may assume there is nothing to do other than let the coverage expire.
But certain convertible term policies may warrant a closer look.
Depending on the insured, the policy and the available conversion options, there may be circumstances where converting the policy creates a potential life settlement opportunity.
The key is timing.
Once a conversion option expires or the policy lapses, an opportunity that might have existed can disappear with it. That’s why we encourage advisors to bring SFS into the conversation before the deadline rather than afterward.
You don’t need to determine whether the economics work. Let us evaluate the situation and tell you whether there is something worth pursuing.
7. The Client Has an Immediate Need for Liquidity
Sometimes the policy hasn’t changed at all. The client’s priorities have.
Unexpected healthcare expenses may arise. Retirement needs may shift. A family member may need assistance. A new investment or business opportunity may emerge. Or the client may simply decide that having access to capital today is more valuable than maintaining a death benefit for the future.
For a client with a substantial life insurance policy, the policy may represent a source of value they haven’t considered.
This doesn’t mean a life settlement should automatically be used whenever a client needs liquidity. It means the policy should be included among the assets being evaluated.
We’ve seen firsthand how significant the difference can be when an advisor recognizes that opportunity.
In one recent SFS case, a 69-year-old woman with a $2 million life insurance policy was experiencing health issues and needed additional liquidity. She was considering surrendering the policy for approximately $250,000.
Her advisor knew enough about life settlements to ask one more question before she did.
After the policy was brought to SFS and exposed to more than 20 potential buyers, the client ultimately received $800,000 for the policy.
That additional $550,000 didn’t come from changing the client’s circumstances. It came from recognizing that there was another market for an asset she already owned and taking the time to explore it before making an irreversible decision.
The Advisor Doesn’t Need to Have the Answer
There’s a common thread running through all seven of these situations.
Something changed.
Sometimes it’s the client’s health. Sometimes it’s their financial situation. Sometimes it’s the purpose of the policy itself. And sometimes it’s simply the client’s priorities.
Those changes are the signals we want advisors and brokers to recognize.
You don’t need to calculate what a policy might be worth. You don’t need to know which institutional buyers might be interested. You don’t need to understand all of the underwriting considerations or determine whether a case will ultimately qualify.
That’s what SFS is here to do.
When you bring us into a potential opportunity, we can review the client’s situation and policy to determine whether pursuing a life settlement makes sense. When it does, SFS can take the policy to a broad marketplace of 20+ institutional buyers, create competition and negotiate on behalf of the policy owner.
Just as importantly, you remain at the center of the client relationship. We provide the specialized life settlement expertise behind you while you continue to serve as the trusted advisor who recognized that there might be another option worth considering.
One More Question Can Make a Significant Difference
The best time to think about a life settlement isn’t after a policy has been surrendered or allowed to lapse.
It’s when something changes.
That’s why we encourage advisors to look across their existing book of business with these seven situations in mind. You may already have clients whose circumstances have changed and policies that deserve another look.
The question isn’t, “Do I know whether this client qualifies for a life settlement?”
The better question is, “Has something changed that makes this policy worth reviewing?”
If the answer is yes, bring SFS into the conversation.
We know the market, we know the buyers and we can help you determine what’s possible before your client makes a final decision.