Jeff Judy

Jeff's Thoughts - November 26, 2008

Serving Your Senior Customers Better: Life Settlements

Editor's Note: The various transitions in a customer's life present opportunities to provide service and build loyalty. Most bankers are aware of the changing needs and opportunities of young adulthood, but sometimes they are less likely to see how they can advise their older customers. One example of how we can better serve our older customers is in the area of insurance, through awareness of the "life settlement" (secondary) marketplace. Several bankers have mentioned the great work that Bob Cohen does in this area, so I have asked Bob to cover this topic for this issue of Jeff's Thoughts. More about Bob Cohen Below.

As your customers look to you for guidance through economic challenges and through transitions in their own needs and goals, you must continually re-evaluate their objectives, strategies and available options. Today's economic environment requires that financial services professionals understand and consider all financial planning tools and concepts at their disposal.

Your customers who are approaching, or well into, their retirement years find themselves in new territory, facing decisions they have never made before. They depend on you to present options that make the best possible use of the financial tools available to protect and expand their assets supporting this new phase in their lives.

Thankfully, your senior aged customers have many new and potentially profitable options. A life settlement provides a secondary marketplace for life insurance policies offering considerable financial benefits to seniors. The life settlement market has proven to be rewarding for qualified seniors who have life insurance policies that are no longer wanted, needed, affordable or are in jeopardy of unintentionally lapsing. Previously, these policies were surrendered to the issuing insurance carrier for minimal cash values, often returning only a fraction of the total premiums paid into the policy. Your insured customers may now receive a multiple of their cash surrender value from the sale of their policy through this secondary marketplace. The proceeds of such a sale can be applied to help ensure financial security and to meet changing plans, supporting new goals your customers have developed in their senior years.

When appropriate, the sale of a policy may provide additional capital, enabling a policy owner to evaluate other options that were once not even considered, but are perhaps now more appropriate. Some of these options include:

  1. Less expensively priced individual life coverage that is more suitable for the clients' needs
  2. Second to Die coverage for estate planning purposes
  3. Tax deferred or income producing vehicles, i.e., annuities, deferred or immediate
  4. Long-term care insurance
  5. Stocks, bonds, or mutual funds
  6. Charitable giving
  7. College funding
  8. Travel / lifestyle

These options create new financial benefits for seniors. They also enhance your ability to act in the best financial interest of your customer by providing as many financial options as possible. Consider these two examples:

Outright Life Settlement/Sale

  • Client: male, age 74
  • Policy: $1.5 million death benefit
  • Issue: coverage no longer necessary
  • Cash Surrender Value = $74,000
  • Life Settlement Proceeds = $210,000
  • Increase to Customer: 184%

Refinance of Existing Policy using Life Settlement

  • Client: female age 81
  • Policy: $2.2 million death benefit
  • Premium: $263,000
  • Issue: Desires same death benefit at reduced premium rates
  • Cash Surrender Value: $127,000
  • Life Settlement Proceeds: $374,000
  • "Refinanced" premium for a new $2.2 million policy using life settlements proceeds as "down payment": $207,000
  • Premium savings: 27%

It is important for every financial services professional to be knowledgeable about the life settlement marketplace. You are dedicated to representing your customer's best interests, and an understanding of this industry and access to its resources are crucial tools in serving those interests. Alerting your customers when they benefit more from the sale of a life insurance policy than by an outright surrender is necessary when fulfilling that obligation.

An organization's fiduciary duty to a customer is not only a statement, but also a governing responsibility and an ethical obligation. Including life settlement options as part of your due diligence also helps to insulate your organization from liability by ensuring disclosure to your customers of the most financially advantageous strategies for maximizing their assets. Where your organization is named as trustee on life insurance policies, this becomes an urgent expectation and addresses potential liability assumed in the role of trustee. Older Bank Owned Life Insurance (BOLI) policies may also be evaluated to maximize value and/or refinance the plan.

You work hard to serve your customers throughout their lives. Knowledge of the benefits available to your customers through the life settlement marketplace can provide options that build the financial assets your customers are looking for, to achieve their goals for their senior years.

About Bob

Cohen Bob Cohen is a Principal of Tamar Fink, Inc. Bob focuses exclusively on insurance, working with individuals approaching or into their retirement years to identify strategies to increase their spendable dollars. He is a nationally known presenter to the professional advisory community on strategies for evaluating insurance profiles and uncovering opportunities to help individuals reduce costs and increase their discretionary dollars. You can reach Bob at 612-922-3113 / 888-338-3465 or