No surrender: Advisers have ‘obligation’ to talk life settlements with clients

Advisers should regularly review and analyze the value of their older clients’ life insurance policies — much in the way they examine equities and other investments that are part of financial portfolios.

That’s the take of Peter Hershon, regional vice president of The Coventry Group, which operates in the secondary market for life insurance policies. if an adviser has a client who is 75 or older — or 65 and suffering from health issues — they should seek a valuation of the client’s life insurance policies. Policies with a face value of at least $100,000 could be worth selling, though most policies that Coventry buys are $500,000 and above.

In a life settlement, a policyholder is paid cash for a equal to a fraction of the amount of the policy’s coverage. The buyer of the policy continues paying premiums and collects the benefit when the insured person dies.

Such transactions have come under scrutiny by state insurance regulators, which oversees the industry. The best candidates for a life settlement are people with a life expectancy of two to 15 years and who are considering letting a policy lapse or taking its surrender value, Mr. Hershon said at the annual conference of the National Association of Estate Planners & Councils in Orlando, Fla., on Friday.

“It’s no longer an option; it’s an obligation to let clients know about the life settlements market,” he said. “We understand life settlements will not be the focus of your day, ever, but this may come up where we can help get value for something you’d normally surrender.”

For example, a 79-year-old man who wanted to stopping paying the premiums on a universal life policy with a $1.5 million face value sold it to Coventry for $196,000. In another case, a 70-year-old man had a term life policy with a $5 million face value that was about to run out. Coventry bought it for $150,000, Mr. Hershon said.

Related Topics: Life Settlements