Financial Advisors and life settlements often do not mix. Your client, the person or even friend who has trusted your advice in financial matters for years, could sell their life insurance policy for cash. Yet, you allow them to just lapse or surrender it because the Life Insurance company you work for will not allow life settlements. There is a definite conflict here.
If you allow a client to cancel their policy because they cannot afford it without you ever informing them that there is a legal, regulated way to sell their policy to a licensed buyer, what liability do you create? Your client could receive the equivalent of 20 years of paid premiums back to them, tax free, for the TERM life insurance policy that they are lapsing, however you are not even permitted to offer the option. In this case, what can you do?
Reverse Life Insurance has helped thousands of people understand options for selling existing life insurance policies for over 15 years. We continue to help educate people on a daily basis. Nevertheless, there are still many who have never heard of any reverse life insurance options for their policies. As their trusted agent or advisor, you want to help your clients by offering them the best solutions. Whether they are seeking funds for medical treatments or simply want retirement planning advice, they look to you for guidance.
As a Senior Life Insurance Executive, our founder saw firsthand how valuable life insurance can be for families. In contrast, he also saw a darker side of the industry. Insurance carriers often encourage policyowners to lapse/cancel their policies for the meager cash value or nothing at all. However, these policies can often be sold in the secondary market for an exponentially higher amount than cash surrender value. Even policies with zero cash value often have a large hidden value as reverse life insurance.
“My initial exposure to life settlements and the secondary market for life insurance was in the late 1990’s. At the time, I was a Life insurance Executive in Toronto. The international insurance company I represented began terminating agents and management for transacting life settlements. Most were unethically financing the premiums of life insurance for resale. STOLI, or Stranger Originated Life Insurance, became the go to black eye to the secondary insurance market. Broker Dealers and Insurance Companies still reference this, keeping their clients in the dark about all of their options. It’s come full circle. Now is the time for the Insurance Industry to be reconciled” – Reverse Life Insurance Founder, CE Dean FICF
The Secondary Market for insurance is regulated, vibrant, and benefiting the general public the way it should. Life Settlements, Viaticals, Life Insurance Advances as well as other Reverse Life Insurance options now abound. Still, some Broker Dealers and Insurance Companies continue to contractually prohibit their agents and advisors from taking part in the sale of a life insurance policy as a life settlement in the secondary market. To be clear, their actions harm clients, create an almost insurmountable conflict and therein lies the problem.
Financial Advisors Now Have Access to Compliant Life Settlement Platform
Our Reverse Life Insurance platform allows clients of financial advisors to access hidden value in their policies as life settlements. In addition, it allows you to be hands-off during the transaction. That means that you don’t have to do anything beyond mentioning to your clients the possibility of selling their policy. After connecting with your client, we will discuss the qualification process with them directly. Everything we do is automated. We collect signatures for HIPAA and disclosure documents electronically. We order medical records and insurance policy documents and illustrations, securely storing them. After reviewing this medical and policy information, direct buyers will make an offer to your client based on their appraisal. Your client is welcome to discuss everything with you as their trusted advisor. However, you do not have to take part in the process.
Less than 1% of those eligible for reverse life insurance ever take advantage of the life settlement option. People are simply unaware. Our direct licensed buyers pay a referral fee when a policy qualifies and is sold. If being held captive by your employer and unable to mention life settlements, know that anyone can make the referral. It is perfectly legal to pay a referral fee to someone or an entity that is not licensed if an employment contract has restrictions. Financial advisors and life settlements need to come together.
Financial Advisors Have Fiduciary Duty When It Comes to Life Settlements
Reverse life insurance options are valuable financial tools that can help your client retain value in a policy that they may otherwise lapse or surrender. Last year, over $642 billion dollars in face value of life insurance policies lapsed. Many of these policies could have and should have been sold instead. This would allow the policy owners to recoup some, all, or even more than the money actually paid in premiums.
Policy owners sold less than 1% of eligible policies last year. That is roughly 3,000 policies amounting to $4 billion in face value. These fortunate policy owners received over $750 million in cash payouts. The face value sold only represents less than 1% of the amount lapsed.
A life settlement is the sale of an existing life insurance policy to an investor fund for cash. The new owner takes over ownership and beneficiary rights to the policy and all responsibility for future premium payments. Life settlements and other types of reverse life insurance are legal and heavily regulated. In order to purchase policies, buyers must be licensed.
There are only five states that do not regulate life settlements; Alabama, Missouri, South Carolina, South Dakota, and Wyoming. Washington D.C. is also another unregulated jurisdiction.
What can you do when you have your client’s best interests at heart, but your employer has your hands tied? Beyond a moral obligation to consumers, are there legal reasons why you must consider advising a client about the possibility of selling their policy in the secondary market? Life settlements provide much more cash for the policyholder than a surrender or lapse of their policy. Therefore, not presenting reverse life insurance as an option could constitute a breach of fiduciary duty.
Advisors who neglect to tell clients about their reverse life insurance settlement options are being sued.
Advisors should be aware of the justifiable legal actions that policy owners have brought against carriers and advisors. The crime? Failing to disclose life settlement options. As precedent-setting legal actions against the concealment of information on life settlements come forth, more advisors educate their clients. It is both a smart business offering and protection against potential legal and financial liability.
In 2011, life insurance policyholders filed a lawsuit against John Hancock for violating Washington State’s Consumer Protection Act. Hancock’s appeal for summary judgment alleging the policyowner should have known about the secondary market on their own was denied. As a result, John Hancock settled the case prior to trial.1
In 2014, the owners of a life insurance policy filed a class-action lawsuit against their insurance company and advisor. This was in a state that doesn’t even have the disclosure mandate. The policy owner’s suit cited the “common and systemic practice” of “failing to inform and/or concealing from its insureds the option of a life settlement in connection with their life insurance policies.” The lawsuit sought damages based on the defendant “purposely omitting this information because it knows that other options, such as surrendering the policy (in whole or in part) or letting it lapse, will generate greater profits to the insurance company than a life settlement would.” The court confirmed that failure to disclose the life settlements option could result in financial harm to policyholders and beneficiaries. The case settled out of court in 2016.2
In 2016, a similar lawsuit was filed by the owners of a life insurance policy. The claims against the defendant were that they engaged in a “pervasive practice in the life insurance industry.” The defendant “instructs its own agents as well as independent agents that transact insurance to omit or conceal the option of a life settlement from its insureds.” The claim seeks compensatory damages and cites violations of the California Consumer Legal Remedies Act, financial abuse of an elder, and unlawful, unfair, and fraudulent business practices.3
The SEC approved Regulation Best Interest (Regulation BI) on June 5, 2019.4 The goal of this regulation was to impose higher standard of care rules for brokers, thereby protecting consumer interests.
Reverse Life Insurance Settlements Impacted by Regulation BI
After Regulation BI passed, the National Association of Insurance Commissioners created their own best interest standard. Many states adopted their own standards for insurance agents, some even more strict than the SEC’s policy. This regulation shows that that the government wants to protect consumers from conflicts of interest related to any financial services.
Of course the insurance company would prefer that policy owners surrender or lapse their unwanted or unaffordable policy. You have a responsibility to act in the best interest of your client though. Reverse life insurance almost always generates more cash than the surrender of a policy. Clients would almost certainly choose this option over a lapse or surrendering for a meager cash value.
Withholding information about life settlements that could potentially benefit your clients violates fiduciary responsibility and the “best interest standard” of Regulation BI.
Reverse life insurance is a legal, regulated transaction that can provide much-needed cash flow for seniors. It’s a viable financial strategy and is usually the most beneficial approach when someone longer needs or wants their life insurance.
Scenarios where a reverse life insurance settlement may benefit your clients:
They are considering lapsing or surrendering their policy.
He or she suffers from a chronic or terminal illness.
The client needs, but cannot afford, home healthcare or long-term care services.
They can no longer afford the premium payments on their existing policy.
A client’s term policy is nearing expiration.
Your client has altered their estate plan, is selling a business, or is retiring.
He or she needs a smaller policy or no longer needs life insurance.
Life Insurance Laws
Georgia Passes Law to Protect Agents and Financial Advisors Who Mention Life Settlements
Georgia is the first state to enact a law to specifically protect agents. Gov. Nathan Deal signed Georgia H.B. 193 into law on April 26, 2016. This law prohibits life insurance companies from punishing or terminating agents who inform their clients about life settlement options. Financial advisors now avoid negative action when mentioning this alternative to lapsing or surrendering a policy.
“The Life Insurance Consumer Disclosure Act” specifically states that: “an insurer shall not terminate or otherwise penalize an agent for apprising a policy owner of alternatives to the lapse or surrender of an individual life insurance policy”
Multiple States Have Enacted Laws to Protect Consumers
Georgia is currently the only state with a law protecting life insurance agents and financial advisors who mention life settlements. The following six states have mandatory disclosure laws to protect consumers though. These laws stipulate that life insurance companies must inform policyholders considering a lapse or surrender of possible life settlement options.
- New Hampshire
A financial advisor equipped with thorough knowledge of reverse life insurance options can better help clients reach their financial goals. Advisors who fail to mention these options may be in direct violation of their fiduciary duty. Make your clients aware of alternatives to a lapse or surrender. It is important to do your homework and educate your clients about the best options available to them.
Financial Advisors and Life Settlements
Reverse life insurance is a portfolio of solutions that enable policyowners to sell existing life insurance policies for cash. They many simply no longer be able to afford premiums, no longer need insurance, or need funds for medical care. In any case, you can offer them solutions beyond surrendering or lapsing their policy. Be their advocate (and likely hero) by offering them a better option.
Real Life Examples:
A widow in her early 70s who no longer needed her life insurance policy, but was in need of cash, contacted us to find out if her policy had any value as reverse life insurance.
Her $0 cash value $145,000 Universal Life policy got a cash offer of nearly 30%. This life settlement provided some much-needed funds to supplement her pension.
A 67 year old man with significant medical issues was facing financial distress. He thought about lapsing his policy as the premium cost was too much of a burden. His agent suggested that he look into reverse life insurance.
He was able to sell his zero cash value $200,000 term life insurance policy for over $100,000, providing some desperately needed financial relief and relieving him of the $500 monthly premium payments.
The money he received through this viatical settlement allowed him to pay for treatment that his medical insurance didn’t fully cover.
Medicaid Life Settlement
A Medicaid life settlement allows policyowners to convert their life insurance policy into a plan to cover the cost of assisted living directly each month. Rather than surrendering or lapsing their policy in order to qualify for Medicaid, they are able to retain more of their policy’s value. This type of settlement is considered a qualified spend down of the policy.
An 83 year old woman’s family was faced with the necessity of selling off her assets and surrendering her $100,000 life insurance policy in order for her to qualify for Medicaid as she needed to move into an assisted living facility. Luckily, they contacted us about a Medicaid Life Settlement first. The policy was able to be converted into funds in an account to pay directly for her assisted living costs. Not only did these funds provide some relief, but because the settlement is a qualified spend down, she was able to qualify for Medicaid assistance.
Long Term Care Benefit Plan
A daughter called in to find out about funding options for her father who needed long term care. The family was paying out of pocket, but their funds were drying up and they were looking for a solution to help maintain his current standard of care.
The man owned several small life insurance policies. Two of the policies, a $50,000 policy with a loan against it, and a $25,000 policy provided an approximately $30,000 payout towards the cost of his care over the next 3 years.
This payout was set up to be paid directly to his long term care facility each month. The family was happy to be able to keep him in his preferred facility. In addition to the relief of having funds to pay for his care, they no longer needed to make premium payments on the insurance policies.
Retain-a-portion Reverse Life Insurance
A 75 yr old man owned a $500,000 Universal Life insurance policy. While he had heard about life settlements and was interested in seeing what his policy was worth, he wanted to retain some life insurance benefit for his family.
After evaluating his policy, our direct buyer was able to offer him a hybrid offer of $50,000 cash in addition to a retained death benefit of $100,000 for his beneficiaries. He was no longer responsible for premium payments and had some additional cash for living expenses.
Life Insurance Advance
A man was facing a terminal diagnosis at age 72. He wanted desperately to try some alternative treatments to prolong his life, but they weren’t covered by his health insurance policy.
His financial advisor had heard of life settlements and suggested that he contact us to see if the man’s $500,000 policy had any value as reverse life insurance.
Rather than selling the policy, he was able to obtain a life insurance advance loan of $175,000. He received funds to pay for the treatment he desired and he was able to maintain ownership and beneficiary rights to his life insurance policy.
When he passes away, his beneficiaries will receive the death benefit minus the total of the lump sum cash advance, premiums, fees, and interest. If he survives much longer than expected, he is under no obligation to make future premium payments or pay back the advance if there is not enough benefit left in his policy to cover it.
“Seldom do I write a testimonial. Reverselifeinsurance.com exceeded my expectations. My experience was stress-free. They informed throughout the process and the standard of professionalism was outstanding. I would absolutely recommend Reverselifeinsurance.com without hesitation.”E.C.
“ReverseLifeInsurance.com connected me with a direct buyer who purchased my life insurance policy. The Buyer was excellent to work with through the entire transaction. They got me the cash I needed just 2 days before Christmas.”Jim
“I really didn’t have the extra money to pay for the therapy I felt was best for me. I tried to get a life insurance cash advance, but they (the insurance company) said I wasn’t sick enough. Reverselifeinsurance.com’s direct buyer gave me $95,000 for my $250,000 policy! I just finished my 13th treatment. I told them I would recommend them to anyone, so now I am!”J.M.
Our reverse life insurance platform is consumer oriented. We created it to help people sell their insurance policy direct to licensed buyers, when their advisors are not permitted to assist them.
Advisors utilize our platform because allows you to stay out of the process. We handle everything, from the initial client contact to secure and compliant gathering of documents directly from the insurance carrier and physicians.
Once your client receives their sales proceeds, a referral fee is paid to whomever makes the referral. You don’t have to be licensed, just know someone who is lapsing their coverage and telling them to call us is all it takes
There are no more excuses for allowing your clients to miss out on the hidden value in their life insurance. Financial Advisors who make their clients aware of the options life settlements provide are acting in their best interest. Call us or have your clients call directly. Every case and every situation is different.
Reverse Life Insurance pays you to live. Don’t leave money on the table.
1 Graham-Bingham Irrevocable Trust v. John Hancock Life Ins. Co. USA, 827 F. Supp. 2d 1275, 1287 (W.D. Wash. 2011)
2 Grill v. Lincoln Nat. Life Ins. Co., Case No. 14cv-00051 (C.D. Cal.) [Third Amended Complaint]
3 Joseph v. Kaye, et al., Case No. SC125276 (Cal. Super. Ct.)
4 SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34–86031; File No. S7–07–18] RIN 3235–AM35 Regulation Best Interest: The Broker-Dealer Standard of Conduct