The NAIFA webinar, “Leveraging Technology to Identify Policyowners Who Truly Benefit From Life Settlements,” was sponsored by NAIFA’s partner, Proformex. The expert panel of presenters – Jon Mendelsohn, CEO of the Ashar Group; Jim Purdy, Director of Agent Origination at Magna Life Settlements; and Ryan Thompson, Founder of Policy Market – along moderator Steve Lance, Vice President of Sales at Proformex offered some best practices for the life settlements market designed to “demystify the process.”

Life settlements are highly regulated and the life settlements market is very different than the viaticle market, which has not had the best reputation, said Mendelsohn. The viaticle market usually featured individual investors and policyowners with very short life expectancies and was largely unregulated. Life settlements, in contrast, are recognized and highly regulate in all 50 states. The average life expectancy for a policyholder in a life settlements case is 15 years. Investors in life settlements tend to be sophisticated, institutional investors, including reinsurers, private equity firms, endowments, and state pension plans. All types of policies, including term insurance, may qualify for life settlement sales.

Life settlements is another tool agents and advisors can use to repurpose their clients’ existing life insurance and help them create liquidity or solve financial problems, Mendelsohn said.

Purdy said that technology has modernized the life settlements business by allowing agents and advisors to digitize their books of business and providing a critical mass of data over the past 10 years to let companies develop profiles of consumers who can benefit from life settlements and identify opportunities. Technology is particularly helpful in helping agents understand their books of business and consumers know the true value of their life insurance assets, Thomson added. Understanding the value of their books of business creates opportunities for conversations with clients.

“We’re all here today because we have books of business and we want to do the best thing for our clients,” Thompson said. “And everyone wants to make some money along the way. So to be able to provide [clients] with opportunities and options for their life insurance is a great thing.”

Guidance for Agents and Advisors

Lapsing or surrendering a policy that has value is the worst thing a client can do, Thompson said. “They’ve put a lot of money in and worked hard to keep that asset alive” and life settlements can offer an alternative to losing the asset is a policy is no longer needed or becomes too expensive. Agents and advisors who can identify at-risk policies and initiate educated conversations with their clients have a marketplace advantage and create advantages for their clients.

Advisors best serve their clients by considering all of a clients’ assets and offering them financial options, Mendelsohn said. “Just because a policy has value doesn’t mean they should sell it,” he said. “It really comes down to why was the policy originally put in place and have they transitioned out of that original need. If they have and they can free up liquidity for other planning areas, now they might be in a better spot.”

It comes down to providing the best possible service for clients and understanding their complete financial picture. “For you as agents, this is a conversation you can have to help differentiate your insurance practice versus others that might call on them,” Mendelsohn said. “Tell them that you also work with the ability of understanding the fair market value of life insurance, and you’ve included that in your policy-review process.”

Two types of life settlement deals exist, said Purdy:

• Favorable cost-structure deals, where the policyholder’s financial situation has changed since the policy was issued
• Health arbitrage deals, where the policyholder’s health has changed since the policy was issued

Most of the policies being purchased in life settlement transactions are universal life coverage, Purdy said. Favorable cost-structure purchases usually involve policyholders who are over the age of 75 if they are perfectly healthy. For policyholders younger than 75, life settlements for a UL policy typically involve a change in the policyholder’s health.

But life settlements can also benefit people with term life policies who are facing health issues. Sometimes, Purdy said, life settlements “can change people’s lives.” “I’ve seen people where, in a single transaction, [they receive] amounts that they may have taken 30 years to build up into the nest egg,” he added. “So sometimes these things are quire impactful, especially where you see it happen on a term policy where they thought there was no value.”

It’s important to “be proactive, not reactive,” Thompson said. Agents can’t expect policyholders to come to them with questions about what they should do with lapsing policies or these they might consider surrendering. Agents need to identify those opportunities. “We don’t want to leave value in your book of business on the table,” he said. Identifying these opportunities is best for the agent as well as the client.

“Ultimately, giving money away is relatively easy compared to what your normal financial advisor does for a living,” Purdy said.