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Here’s What You Need to Know About Life Settlements

Your clients trust you.

They have confidence that you have their best interest at heart and that you’re doing everything you can to provide them with sound advice.

When it comes to life settlements, you have a responsibility to make sure your clients are aware of the option when it’s appropriate for their unique situation.

That means you need to have the backing of a good General Agency of life settlement experts and you have to understand what a life settlement is and when your clients could benefit from one.

Here are some of the most frequently asked questions about life settlements.

1. What is a life settlement?

You may be familiar with the term, but what exactly is a life settlement?

It’s defined as:

The sale of an existing life settlement policy for more than its cash-surrender value, but less than its death benefit, to a third-party financial institution, called a provider.

2. When is it a good idea to sell?

There are certain life circumstances in which it’s a better idea for a client to opt for a life settlement. These include:

  • The beneficiary no longer needs coverage.

  • A need for emergency funds, for example, a medical situation such as long-term care or to pay for an urgent debt.

  • Increasing premiums make it unaffordable.

  • The term policy is expiring.

Let’s take a look at some real-life examples.

Example 1:

Jim purchased his life settlement policy when he had a young family. Thirty years have passed and now his children are grown and self-sufficient. As he ages, he’s facing some necessary medical treatment. Instead of burdening his children with his expenses, he decides on a life settlement to cover the costs of his treatment.

Example 2:

Tom and Karen purchased life settlement policies when they married, naming each other as the beneficiary. After 40 years of marriage, Karen passes away and Tom collects the settlement payout on her policy. With a policy still left, Tom decides on a life settlement.

Example 3

Susan and Mary start a business together. They fund a Buy-Sell Agreement with a life settlement policy to keep the business afloat if one of them were to pass away prematurely.  Unfortunately, the business goes under and the Buy-Sell Agreement and life settlement policy are no longer needed. Susan and Mary decide that a life settlement is the best option for both of them and their futures.

Example 4

John and Laura purchase a life settlement policy during their marriage. The policy is for John with Laura as the beneficiary Things don’t work out and they decide to divorce. They don’t have any children and Laura decides she no longer needs the policy and opts for a life settlement.

3. Who is eligible for a life settlement?

There are certain criteria that must be met for a life settlement to be an option.

  • Age over 65: Age will affect the amount of money your client will get in exchange for their policy.

  • Life expectancy: The lower a client’s life expectancy, the more their life settlement will be. The minimum is two years.

  • How old the policy is: Guidelines vary by state, but a person will usually need to own a policy for a certain amount of time before they’re eligible for a life settlement. Often, exceptions will be made for special circumstances like retirement, death of a spouse, divorce, etc. The policy also needs to be current in order for it to be sold.

Become a trusted advisor with good back-up

It’s impossible for you to understand the intricacies of every life-settlement-related bit of information.

But you also want to provide your clients and prospects with the best advice you can.

Working with a General Agency that understands life settlements is the key to giving your clients what they need.

Are you hesitant to offer life settlements as an option for your clients? If so, what is holding you back?

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