Best Case Scenarios: Is a Life Settlement the Right Solution?

Life settlements are gaining traction as an alternative to surrendering a life insurance policy; however, not all inquiries are created equal. As licensed agents, we have a fiduciary responsibility to protect our clients’ best interests by scrutinizing inquiries and proposals before recommending life settlements.

Policy suitability: A guide for agents

• • Universal life & convertible term life: These are highly sought after by life settlement investors.
  • Options: Guaranteed premium universal life policies on insureds over 70, even in good health, are particularly desirable, while convertible term life policies can also be excellent prospects.
  • Whole life policies: Typically, less attractive due to significant cash values, with offers rarely exceeding surrender value.
  • More factors to consider:
    • Face amount: Policies with face amounts of $500,000 and above are generally preferred. However, exceptions exist for face amounts as low as $100,000. Smaller face amounts typically require shorter life expectancies to maintain investor interest.
    • Contestability period: Policies must be beyond the contestability period to be eligible for settlement.

Key takeaways

1. 1. Life settlements are increasingly popular as an alternative to surrendering an unneeded policy. However, life settlements may not be the right solution for all clients and policies.
   2. Identify red flags and evaluate client suitability thoroughly before recommending a life settlement. Learn to recognize which policies are ideal for settlements and which are not.
   3. Ensure that clients understand the risks and long-term implications of life settlements within their overall financial context.