CPAs: Help Your Clients In An Unexpected Way

You are your client’s trusted advisor. You help them find solutions to their financial issues.  Especially in financially challenging times, how would your clients feel if you could help them find money in an unusual way?  How, you say? I’ll explain.

Life insurance can be an important part of financial planning. But, sometimes the reason people buy policies is no longer an issue, making the policy unnecessary.  500,000 seniors a year will lapse their life insurance policy, walking away with little or nothing.  They no longer want, need or can afford the policy, so they just let it go. They do not know there is another option – selling it for cash – through a life insurance settlement.

A life insurance settlement (also known as a life settlement) is simply the sale of a life insurance policy to a third party, usually an investor group. The buyer becomes the new owner of the policy, pays the premiums and becomes the beneficiary, collecting when the policy matures. These investors purchase the policies for their return potential, but also as a diversification tool for their portfolios.

Typical examples of why a client would no longer want or need their policy include the death of a spouse, retirement in which income replacement is no longer needed, a business or key asset has been sold, a term policy is coming to its end or the conversion privilege is nearing, maybe the policy no longer fits in the client’s budget, and many more. Obviously, there are 500,000 different reasons a policy is no longer wanted.

Selling a policy through a life insurance settlement not only frees the client from the future premium payments, but garners additional cash for an “unknown” asset. Most clients do not see their life insurance policy as an asset. And yet, it is. Since 1911, a Supreme Court decision in Grigsby v. Russell deemed a life insurance policy an asset that can be transferred to whomever the owner wishes. I can transfer my life insurance policy to you today, with a signature on the insurance company’s change of ownership form.

The amount of money an investor group is willing to pay for a policy depends on three basic factors: 1) the premium to be paid; 2) the life expectancy of the client; and 3) the death benefit of the policy.  Investors are looking for clients with life expectancies of 10 – 15 years or less, occasionally 20. Clients who are seniors are the best candidates, with policies of $100,000 face value or larger. The lower the premium, the shorter the life expectancy of the client, and the higher the death benefit of the policy, all contribute to a higher offer from buyers. We have sold policies for a few thousand dollars to hundreds of thousands of dollars. Each client’s policy and situation are unique.

We know selling a life insurance policy is legal, thanks to Grigsby v. Russell. But, the market is also very highly regulated by Departments of Insurance across the country.  Life insurance settlements brokers, like me, have to have special licensing and the buyers need to be registered with each state, in many cases posting a bond, having HIPAA policies in place, anti-fraud policies, etc.  Many states require the buyers detail the policies they buy each year to maintain transparency.  The process is also transparent for the client, with the policy owner, insured and beneficiaries all signing off, so there are no surprises for the client or their beneficiaries.

At the end of the day, life insurance settlements generate “found money” for clients, from an asset they didn’t know they had, through a process they didn’t know existed. Life insurance settlements are not for everyone, nor should they be, but if you and your client have decided that their life insurance policy no longer fits their needs, a life insurance settlement can be a better alternative to lapsing or surrendering the policy. Studies have shown that a life insurance settlement can garner 3 – 5 the cash surrender value of the policy. And, did I mention term policies can also be sold?

Many of you will conduct financial reviews with clients at least once per year. The question to ask is easy: Do you have a life insurance policy you no longer need, want or can afford?  If the answer is yes, investigating a life insurance settlement may make sense as an option. Your client receives cash from their “hidden asset”, and you look like a hero.

Lisa Rehburg, President of Rehburg Life Insurance Settlements, is a life settlements broker whose duty and passion is to represent clients to obtain the highest return for their policy. With access to over 30 investor groups, Rehburg Life Insurance Settlements garners more for clients’ policies. Lisa has been in the insurance industry for over 30 years, and can be reached at (714) 349-7981, [email protected], www.rehburglifesettlements.com.