Many agents have never spoken to some senior client about life settlements. Why so little desire for this valuable financial planning tool? To begin with, not all the agent is permitted to discuss the life span settlement option having a client. Insurance provider or broker/dealer prohibitions close the doorway for such agents despite the fact that an existence settlement might be within the client's interest. Let's examine various other possible reasons. |
Reason #1 - "I am just unfamiliar with the life span settlement concept."
Agents need additional education in these transactions to feel at ease discussing all of them with senior clients. Training is not available until recently. A minimum of two life settlement providers have training programs approved in certain states. Industry training continues to be available for a while. It really is incumbent upon life settlement brokers and providers to provide training programs. The secret is developing relationships and providing a turnkey solution, including compensation.
Reason #2 - "I'm waiting around for the problem in the future up."
A customer may complain concerning the annual life premium he just received within the mail, but he probably never heard about an existence settlement in the event you haven't brought it. Traditional mass media outlets don't cover life settlements. Business editors and producers seem to be confused from the concept or possess a vague memory of individuals losing cash in viatical (terminal illness) settlements. The result of the news blackout would be that the senior never hears the word "life settlements" and doesn't know to inquire about the question towards the insurance professional.
The sad the fact is that lots of seniors are orphaned policyholders without any servicing agent. Their only contact is by using the issuing company, virtually making certain you will see absolutely no way for being presented the life span settlement alternative. In case you are before a customer who may be eligible for an existence settlement, simply ask, "Has your daily life insurance plan been reviewed recently?" That question is going to be worth the weight in gold.
Reason #3 - "I manage assets. I don't do insurance."
This can be a common objection from broker/ dealer financial advisors who don't realize that an insurance plan is definitely an focal point in be managed just like a mutual fund or stock and bond portfolio. In case you are a wealth manager and don't understand your client's life insurance coverage holdings, you might be putting other assets in danger. Not every investments perform as intended. Poorly performing investments tend to be sold and replaced by other investments. An existence insurance contract could also perform poorly. Perhaps, at inception, the insurance policy illustration was shown having a projected interest rate that is not attainable. The scheduled premium may no more secure the illustrated cash values or perhaps the death benefit.
An insurance professional or financial advisor should perform a yearly policy review with current ledger illustrations to ensure that policy premiums are adequate to keep projected cash values as well as the death benefit. The insurance policy review may also increase the issue of whether or not the coverage is adequate. Policy management also addresses the problems of replacement, insurability, and possible tax consequences.
Reason #4 - "I favor to recommend a 1035 exchange for replacement."
This objection tells me the agent will not comprehend the value that the life settlement creates or even the tax consequences. Nearly 50 % of all life settlement proceeds get into acquiring new policies, based on the Life Insurance Coverage Settlement Assn. If new insurance will be acquired, is really a 1035 exchange much better than a sale inside a life settlement transaction?
You will find no current tax consequences to some 1035 exchange. The foundation within the old life contract is moved to the brand new contract as well as the old policy is traded in at cash surrender value to get the brand new policy.
Within the sale of the life insurance coverage policy, there could be a tax consequence upon sale when the proceeds exceed the price basis. However, to create the comparison fair, the after-tax proceeds should be when compared to existing policy's cash surrender value. No taxpayer is within the 100% tax bracket. Also, incremental after-tax gains via sale are more often than not more than the money surrender value. Obviously, an existence settlement should be more than cash surrender value. Which means that a qualifying senior has more cash at their disposal to get a brand new policy. Historically an existence settlement runs around 200% to 300% more than cash-surrender values. While every case differs, comparing 1035 exchanges to some possible life settlement is the proper way to approach policy replacement.
Reason #5 - "I don't know how fair market price is produced."
As mentioned previously, it comes with an enormous spread from a policy's cash surrender value and fair market price. In actual estate, the customer and seller negotiate fair market price. The vendor lists at one price, the customer counters having a discounted price, as well as the price level is somewhere at the center.
Contrast by using the competitive bidding process within the secondary market. The greatest bidder reaches present an existence settlement offer. Wouldn't it be nice to get 10 potential customers bidding on your own house how they invest in your daily life insurance plan? A policy's cash value represents the bid of a single buyer - the issuing insurance provider. Do you reckon this valuation will be higher or less than competitive bid?
Any adverse health arbitrage also produces the valuation gap. Insurance plans cost depending on the insured's age, sex, and health in the application date and subsequent health changes should not be anticipated or taken into account. A buyer within the secondary market examines the insured's current health insurance and how health problems affect life span. It comes with an inverse relationship between policy valuation and life span.
Reason #6 - "I'm uncertain how you can market the product."
The marketplace for life settlements is definitely the senior that is generally 70 or older having a health problem which has developed because the policy application date. Institutionally funded life settlement providers buy policies with an insured having a two-year to 12-year life span. Direct marketing to seniors whom you may not know might be ineffective.
An economic seminar is definitely an chance to discuss these transactions to the correct audience so long as there are more topics around the table. It really is much too narrow a subject to become the point of interest. Not all the senior owns an existence insurance plan, not all the policyholder qualifies, and not many are thinking about getting rid of an insurance policy. The life span settlement topic will make a good bullet point on the seminar agenda having a brief mention that it must be a brand new concept that could generate cash from the dormant asset.
If senior seminars usually are not for you personally, there are more marketing suggestions to consider. Approach CPAs, estate attorneys, and trust officers within your network about life settlements, positioning yourself being an expert. Most likely they may have never learned about life settlements or they may be only slightly knowledgeable about them. You are going to increase the value of their service offerings and can introduce them to a different concept, putting yourself inside a favorable referral position.
Point out that corporate-owned policies and trust-owned policies can be eligible for potential sale along with individually owned policies. This can trigger client prospects within their minds. You can publish a post on life settlements inside a local company journal ensuring your byline includes contact details. Additionally you might want to market life settlements to people who provide other services to seniors, perhaps people who offer senior healthcare services or people who organize senior activities. Provide a compensation incentive to allow them to recruit prospects for you personally.
Finally, interact with the planned giving officer at the alma mater or local university. Universities frequently receive life insurance coverage gifts. Most would like obtaining the cash now to waiting years to gather an advantage. An existence settlement provides the university the chance to get immediate cash. Probably the university could send a letter to alumni that are approaching age 70 about creating gifts from the proceeds of unneeded or unwanted life insurance coverage policies. The tax deduction for donated assets is definitely the fair market price from the asset. The deduction for your cash donation of the life settled policy will be bigger than for your donated policy itself.
Selling a brand new financial service requires awareness, then familiarity, then expertise, then planning and creativity, commitment, and follow-through. It is really not far too late to incorporate life settlements for your arsenal of product ideas. Remember, the first Baby Boomer, who can not turn 70 until 2016, will quickly be accompanied by millions upon millions more.
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