Real Client Losses
Your inaction could result in your clients unwittingly walking away from significant proceeds from an unwanted policy or paying otherwise indefensible fees, dramatically impacting their net proceeds.
Without your advocacy and guidance, clients are left badly exposed to a universe of only sub-optimal and bad outcomes when they are - or should be - assessing the utility of life insurance that they own. Lapse, surrender, or settlement to a single buyer, who pays a non-competitive price, or through an egregiously expensive and inefficient broker, all ensure that your client will receive far less for their asset than they should.
Below are just a few actual examples we've discussed with client advisors that would have been prevented had the advisor simply been aware of what the client owned and inquired earlier - or, ideally, incorporated into their planning process a regular review of the client's life insurance holdings.
Likely $500,000 missed opportunity
The insurance team at a large RIA engaged us regarding a 10 year-old $10,000,000 GUL that the 73 year-old policy owner and insured no longer wanted to maintain and on which he was running the cash value down to cover premiums.
Unfortunately, although the policy remained in force, the funding approach that the owner had taken resulted in a lapse of the guarantee of the policy 6 months earlier. Had the guarantee been maintained, the policy was likely worth at least $500,000.
"We should have asked..."
71 year old healthy male
$10,000,000 GUL
$9 billion AUM RIA
Likely $400,000 missed opportunity
The advisor, at a large wirehouse firm, responded to an outreach from us to discuss his 83 year-old client's joint life $2,000,000 policy. An analysis of the policy determined that it was likely worth $400,000, but the advisor had permitted the policy, which had no surrender value, to lapse just a month earlier.
We helped the advisor, who was also the writing agent on the policy, to engage the carrier to determine if the policy could be reinstated, but, unfortunately, that was no longer an option.
"I'm just sick to my stomach..."
83 year old healthy male & female
$2,000,000 UL
National wirehouse
$300,000 in excess fees
The producer with a large BGA had recently helped his clients, a couple in their mid-70's, to sell $9,000,000 across three policies as they had determined that they had more insurance than they needed and wanted to distribute the proceeds to their children. "I just wanted to do the right thing and help a client."
After a "torturous, unbelievably confusing" four-month process, the policies sold for $1,200,000, netting his clients $800,000 - $300,000 less ($150,000 for each of their adult children) than they would have with our fee structure.
"I wish I'd met you earlier..."
74 year old male & 73 year old female
$9,000,000 UL
Large BGA
$6,000,000 less settlement value
The head of insurance at a large, national RIA engaged us about a $20,000,000 guaranteed UL owned by an advisor's client on his parents, both in their mid-80s. The wealth advisor was assessing various options for the policy as premiums were increasing and the owner was facing what had become something of a prolonged liquidity crunch.
We assessed that the policy was likely worth >$1,000,000 to the market, but, had the minimum guaranteed payments been maintained a year earlier, the policy would likely have been worth $7,000,000. Had a dialogue about options for the policy taken place earlier, the client could at least have been able to make an informed decision as to how or whether to maintain the policy.
"HOW much less?"
85 year old healthy male & 86 year old healthy female
$20,000,000 GUL
$120 billion AUM RIA
The basics
UL/VUL/Term
POLICY TYPES
Any permanent, cash value - or convertible into cash value - policy can work, depending on other factors (Whole Life policies rarely work)
<72
IF LESS THAN HEALTHY
This is a function of duration demand in the market, the longest of which is about 16 years (life expectancy)
>72
IF HEALTHY
for women, add two years and for joint policies on which both are alive, add another two years before a policy is likely to work
>$500,000
POLICY SIZE
Although we can help with smaller policies, there is little market demand, given the underwriting and admin costs relative to potential return
Your Advocacy is Critical
Is a client of your firm better off with you, their trusted wealth advisor, not responsibly engaging them about selling an unwanted or surplus life insurance policy from which they might be able to extract significant liquidity?
If a client were to lapse a policy that they later became aware might have had significant value to a 3rd party buyer, but about which you never discussed the option, how would you defend the decision not to have engaged them about it?
And if you do engage a life settlement broker for your advisors to engage clients about life settlements as an option for their unwanted and surplus life insurance, how do you defend the opaque process and 30% fees?