Financial advisors carry a lot of responsibility, especially as a client’s needs shift with age. When a client starts reevaluating their assets in retirement, or their family steps in to help, traditional financial planning strategies don’t always fit. That’s where a life settlement may deserve a closer look.
For seniors with permanent life insurance policies, rising premiums, health changes or shifting estate plans often signal that it’s time for a review. Unfortunately, when a policy no longer serves its purpose, many policyholders simply surrender it or let it lapse. But letting an unwanted life insurance policy go for nothing can cost the policyholder real money.
This article is a practical guide to life settlement planning for financial advisors. We’ll walk through when and how to introduce the option, who qualifies, how to talk to clients about life settlements, and what role an advisor’s fiduciary responsibility plays in the recommendation process.
Read on if you’re helping a client reassess their life insurance and wondering when to recommend a life settlement.
CLIENT SITUATIONS THAT MAY SIGNAL A LIFE SETTLEMENT OPPORTUNITY
Life settlements rarely come up on their own. But certain patterns in a client’s life should set off a quiet alarm and move their financial advisor to consider recommending a life settlement:
- The client is 65 or older, with a permanent life insurance policy that’s been untouched for years. The original beneficiary may have passed. The kids may be financially independent. The coverage no longer matches their current goals.
- They’re trying to keep up with premium payments but complaining about the cost. Maybe they’re pulling from a retirement account to cover it or hinting they’re thinking about letting the policy lapse.
- The client’s health has declined, but the family hasn’t mentioned any financial planning adjustments. This may be an opportunity to convert the policy’s potential into funds they can use now for care, comfort or peace of mind.
- They express frustration with the policy’s cash value. If it hasn’t grown the way they expected or it’s being eroded by fees. This is a sign to compare the surrender value against a possible life settlement payout.
- The client is asking about ways to boost liquidity. Maybe they have a surprise medical expense. Maybe their retirement savings aren’t stretching far enough. Either way, the policy might hold more value sold than kept.
Each of these situations points to a difference between what the policy was supposed to do and what it is actually doing now.
THE POLICY REVIEW CHECKLIST FOR ADVISORS
There’s no magic formula, but a few quick questions will usually reveal whether a life insurance policy still fits a client’s needs or has become a quiet drain on their resources.
Start with the following questions:
- What kind of policy is it? If it’s permanent (whole or universal), it may qualify for a life settlement. If it’s a term policy, the question becomes: can it be converted? If so, how much time is left? Some people don’t realize that window’s open until it’s too late.
- What’s changed health-wise? The client might not bring it up, but you may notice the changes. A surgery. New prescriptions. A loved one stepping in to help with appointments. Any of that can call for a review of the client’s policy.
- What’s the size of the policy? If the face value is over $100,000, that opens the door to a life settlement. This doesn’t rule smaller policies out, but the numbers tend to favor larger policies.
- Are the premiums becoming a problem? You won’t always hear it directly from the client. But sometimes they will mention borrowing from savings or ask about stopping payments altogether. That’s your invitation to explore the possibility of a life settlement.
- Does the client know the policy’s surrender value? Most don’t. Even fewer know how much more a life settlement could bring in comparison. The difference can be significant.
The goal isn’t to check every box. It’s to listen for signs that the policy stopped being a benefit and started becoming a burden. Once that becomes apparent, it is a financial advisor’s job to recommend options that will alleviate that burden.
WHEN TO TALK TO CLIENTS ABOUT LIFE SETTLEMENTS
A good time to talk to a client about a life settlement is when they indicate that they’re thinking about letting their policy go. You don’t need to explain the whole life settlement process right there. The conversation tends to go smoother when:
- The policy has become a financial burden. You’re not offering a way out, you’re asking if they’d like to look at one.
- The client has outgrown the policy’s original purpose. Their kids are grown. Their mortgage is gone. They’re still paying premiums, but the goalposts have moved.
- They are shocked to learn the policy might have market value. That moment usually comes with a pause. Then a follow-up: “Wait, can I actually sell my life insurance policy?”
- They are worried it’s too late to do anything with the policy. That’s when you slow things down and explain that it may not be too late for a life settlement. In fact, the time may be just right.
WHY BROKERS MATTER IN THE LIFE SETTLEMENT PROCESS
You wouldn’t tell a client to sell their house without an agent. Similarly, a life settlement broker brings structure, pricing power and protections to the process that sellers can’t get by going directly to buyers.
Here’s why:
- The policy gets evaluated across multiple buyers. Brokers don’t just shop policies around; they create a bidding environment. That competition often drives the final offer higher.
- Clients need help understanding the numbers. A good broker doesn’t sugarcoat the projections. They explain tax treatment, net payouts and what happens if the policy is retained.
- There are privacy concerns. Reputable brokers have safeguards in place to protect the client’s health data and avoid one-sided deals.
- You want documentation. Brokers provide transparency on pricing, offers declined and how the final deal was reached, giving you a clean record that supports your recommendation.
The point is to make sure your client gets a fair deal. If they choose to move forward, a knowledgeable licensed life settlement broker like Life Settlement Advisors can handle the process from start to finish — and protect your role as the advisor.
FIDUCIARY DUTY AND LIFE SETTLEMENTS: YOUR JOB IS TO INFORM
Clients trust their financial advisor to bring everything relevant to the table, not just what they are familiar with. That means recommending a life settlement when it fits, even if you’ve never recommended one before.
A financial advisor’s fiduciary duties and life settlements often intersect when:
- The client is about to surrender a policy or let it lapse. If they aren’t made aware that they could sell it for more, that omission could cost them and raise questions regarding a breach of fiduciary.
- You’re doing a full policy review and the policy no longer supports your client’s goals. Not mentioning a life settlement could look like you skipped a step, especially if liquidity is a concern.
- There’s documentation involved. Once a file shows signs that a life settlement might’ve been appropriate (e.g. age, health, premiums, lack of dependents), it becomes harder to justify why it wasn’t discussed.
- A family member is involved in the planning. If the conversation turns to long-term care, downsizing or estate simplification, you’re expected to help surface all viable options, not just the ones you typically recommend or prefer.
A financial advisor can fulfill their fiduciary duties simply by asking the right questions and recommending meaningful solutions to clients who are counting on them.
Not sure when to recommend a life settlement to your clients? Call Life Settlement Advisors at (888) 849-0887 or reach out to us online to find out if your client’s policy could be worth more than they think. Let us help you explore whether a life settlement aligns with your responsibility and your client’s best interest.
