5 Benefits of Taking a Client’s Life Insurance Policy to a Life Settlement Broker

By now, we're all aware of the growing number of state legislatures and courts establishing a clear new guiding principle in the financial services industry: financial advisors have a fiduciary obligation to act in their client's best interests when making recommendations about investments or life insurance transactions.

This principle creates a fundamental ethical duty for advisors to prioritize their client's interests and provide unbiased advice about their options for purchasing or selling life insurance products.

Client Options for Selling a Life Insurance Policy

If you have a client who has already decided to sell their life insurance policy on the secondary market in a life settlement transaction, you have likely discovered there are two primary options for getting this done:

1. Sell it directly to a life settlement provider; or
2. Work with a licensed life settlement broker who will shop the life insurance policy to all qualified life settlement providers and secure the highest cash offer for you.

Benefits of Working with a Life Settlement Broker

This article is the second in a two-part series that seeks to address the elephant in the room when it comes to advisors and their fiduciary obligations related to life insurance policies. In the previous post, we explored the five primary risks of taking a client’s life insurance policy directly to a life settlement provider.

This article explores five primary benefits of choosing a life settlement broker for your client's policy:

1. LEGALLY BOUND TO SERVE YOUR CLIENT'S BEST INTERESTS

Licensed life settlement brokers are required by law to represent your client’s best interests in a transaction. This means that you can have confidence that the life settlement broker’s only goal is to obtain the maximum benefit for your client, not an investor or other outside actor.

2. MARKET EXPERTISE

Working with an experienced life settlement broker gives you access to a wealth of market knowledge and to the experience of a professional who negotiates offers on life insurance policies every day.

For example, we were recently contacted by an advisor who had a 70-year-old client who could not afford the approaching increase in premiums on his convertible term policy but was uncomfortable with just letting the policy lapse. We jumped on the case, took the policy to several prospective buyers, and ultimately obtained $112,025 for the client — rather than the zero dollars he was about to receive if he had lapsed the life insurance policy. Our life settlement brokerage has been working with consumers and their financial advisors for two decades and has negotiated more than 33,000 life settlement offers for policies of all types and sizes.

3. LEVEL THE PLAYING FIELD

Life insurance policies are purchased on the secondary market by savvy institutional investors who use sophisticated tools to evaluate the potential returns they can generate from life settlement transactions. Working with a top life settlement broker, such as Welcome Funds, helps level the playing field in this high-stakes negotiation process because a broker will already be familiar with the leading buyers in the marketplace. This knowledge will include the varying interests of each buyer, the different objectives of investors in the industry, and the price ranges in which each buyer is seeking to compete for life insurance policies.

4. OBTAIN FAIR MARKET VALUE FOR A LIFE INSURANCE POLICY

The only way to discover the fair market value of any life insurance policy is to ensure competition among the top potential buyers of that policy. In our experience, the best approach is for a licensed life settlement broker to manage a disciplined auction process in which we invite state-licensed life settlement providers to submit a bid for what they would be willing to pay for the policy, then continue to invite potential buyers to raise their bids until the final one has been submitted.

For example, we recently worked with an 82-year-old woman who no longer needed coverage on her policy. The initial bid for the policy was $37,250, but we conducted an exhaustive auction in which we secured a total of 40 offers and ultimately sold her life insurance policy for $400,000. This auction model ensures that we obtain competitive bids for your client’s policy and secure the highest possible price.

5. MEET FIDUCIARY OBLIGATIONS

There is no way for you to feel confident that you are serving the best interests of your client if you jump at the first offer for their life insurance policy that comes your way from a life settlement provider. If you want to be certain that you have met your fiduciary obligations to your client in the sale of their life insurance policy, the solution is to work with a licensed and experienced life settlement broker and rely on a proven brokerage platform.

Conclusion

There is nothing complicated about how to maximize the sale price of any asset you decide to sell. Quite simply, a buyer has no incentive to offer their highest price when they know you aren’t marketing your property to anyone else. The buyer’s objective is to bid as low as possible in order to accomplish their goal, which is to secure the best returns for their investors. This is what happens when an advisor takes a client’s life insurance policy directly to a life settlement provider.

However, by taking your client’s life insurance policy to a licensed and experienced life settlement broker, such as Welcome Funds, you are exploring the competitive marketplace to truly determine the fair market value for that life insurance policy. This ensures that you are serving the best interests of your client.

For more information about fulfilling your fiduciary obligations by working with a life settlement broker, please visit www.welcomefunds.com.