7 Ways the Law Protects Seniors Who Sell Their Life Insurance Policies

7 Ways the Law Protects Seniors Who Sell Their Life Insurance Policies

I never get tired of sharing this fact: a life insurance policy is an asset. If a senior is not going to keep their life insurance policy—for whatever reason—they have a protected property right to sell that policy. In many cases, they’ll receive significantly more than if they simply lapsed or surrendered their policy back to the issuing insurance company. Just like a house or a car, life insurance policies can be a hidden treasure that can result in the senior receiving as much as 10 times more than the policy’s cash surrender value. Many seniors use the proceeds they got from the sale of a policy to fund retirement or pay for long-term care needs.

Yet many seniors don’t take advantage of this opportunity. Why? Because they don’t know it exists or, too often, the financial professionals who advise them—CPAs, wealth managers, estate attorneys, etc.—don’t know about it, either. Secondly, even when they are aware, they don’t understand it.

As such, I’ve dedicated much of my career to promoting the life insurance secondary market and dispelling the myths surrounding this valuable asset class. Over the past 15 years, I’ve worked diligently to create a market that makes selling a life insurance policy one of the safest and secure financial services available to seniors today. Over the past decade, the life insurance secondary market – also known as life settlements – has promoted an unprecedented nationwide set of laws and regulations that protect seniors who sell their policies.

Read on, because these standards matter—perhaps more than anything—when it comes to creating financial options for seniors.

It’s generally accepted that seniors are particularly vulnerable to misguided financial advice. Every advisor I know has a horror story to share about a client who was scammed or swindled out of a significant portion of his or her hard-earned assets. In fact, The Stanford Center on Longevity and the Financial Industry Regulatory Authority's Investor Education Foundation recently reported that seniors over 65 are 34% more likely to lose money on a financial scam than people in their 40s. The good news is that the situation isn’t going unnoticed. Private organizations such as AARP and The Investor Protection Trust, as well as federal and state government entities including the Consumer Financial Protection Bureau, are aggressively working to protect seniors and their nest eggs.

In addition, the Life Insurance Settlement Association (LISA) has led the way in introducing and implementing consumer protections designed to inform and protect seniors so they can easily and safely access the market value for an unwanted, unneeded or unaffordable life insurance policy.

From educating sellers to informing beneficiaries to ensuring policies are being sold to the best possible advantage of the policyholder, the following Top 7 standards provide confidence to seniors and financial professionals that exploring the sale of a policy can be the right choice.

Selling a policy is a highly transparent transaction.


Prior to the sale of a policy, the seller receives numerous consumer disclosures. In most states, this includes all offers, the gross vs. net amount of the offer, sales commissions, comparisons of sale price versus the policy surrender value and accelerated death benefit amount, names of purchasers, and more. They say sunlight is the best antiseptic.

When considering selling a policy, sellers are advised of alternatives to selling it.


Imagine this: you’re trading in your old car at a dealership, and the dealer tells you about all the ways to NOT sell your vehicle. Licensed buyers of life insurance policies are required (in the majority of states) to do essentially that for someone selling their policy: Life settlement companies are required to provide sellers with information about keeping their policies in force, including disclosing that an accelerated death benefit or policy loan might be a better option. In addition, in most states, settlement offers disclose the settlement amount as compared to any accelerated death benefit that might be available under the policy. It’s definitely a seller’s market.

Sellers also receive disclosures of certain risks when selling a policy.


While in most cases the financial benefits of selling a policy far outweigh surrendering it back to the insurance company, there are certain risks that must be disclosed, including tax consequences, a reduction in government benefits due to increased assets (usually a good problem to have!), or creditor debt reducing the net value of the transaction. As a financial professional, your guidance will be needed to assess each risk.

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Michael Freedman
Investing in Life
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Michael Freedman is President of GWG Life, a leading purchaser of life insurance policies in the secondary market. For more than ten years, he has been the life settlement ind ... Click for full bio

Most Read IRIS Articles of the Week: April 24-28

Most Read IRIS Articles of the Week: April 24-28

Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 24-28, 2017 


Click the headline to read the full article.  Enjoy!


1. Implementing a Robo Advisor Strategy


Robo advisors can complement—not threaten—any bank’s business model and improve customer engagement. Regardless of age, income, or gender, 75% of bank customers surveyed by KPMG said they would be likely or somewhat likely to consider a robo advice service from their bank. — Greg Vigrass

2. The Sweetspot of Sales


I’ve had some extremely interesting conversations the last few days. We’ve been discussing sales, sales management, leadership, motivation etc. I am very fortunate to have the opportunity to meet with these inspiring business leaders. One question keeps coming up: Why do you love sales so much? — Tove Zilliacus

3. New ETFs That Reinvent Fixed Income Investing—Without Reinventing the Wheel


We all know the drill: the Fed raises interest rates, and the bond market falls. That’s an important equation to consider now that the decade-long era of historically low interest rates is slowly but surely coming to an end. — Salvatore Bruno

4. Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds


A quiet revolution is taking place in the alternatives world. The idea of alpha/beta separation has finally made its way from traditional to alternative investing. This development brings with it a more transparent, liquid and cost-effective approach to accessing the “alternative beta” component of hedge fund return and a new means for benchmarking hedge fund managers. — Yazann Romahi

5. Advisors Will Be Extinct in 5 Years Unless…


I’ve had financial advisors for more than 40 years. Not once in those years have I called my advisor to find out what stock/funds I should buy or sell. But I have called to find out where I should get my first mortgage, when to sell my house, or how much income I could get in retirement. — Paulette Filion and Judy Paradi

6. Outsourcing Investment Management: TPAM vs. TAMP


Many financial advisory firms want the silver bullet solution to outsourcing investment management so the focus can be on client interactions and business development. However the jargon in this outsourced space has become very confusing so here is a brief summary of our understanding. — Jennifer Goldman​​​​​​​

7. How Can Financial Planners Save You From America's #1 Killer?


You probably aren’t aware of this, but it’s true: financial planners are heroes. Yep, it's the truth. And when you think of the America's top killer, you might think about smoking, cancer or obesity. Or maybe even a serial killer. — Ronald Sier

8. How to Stay On Clients' Minds


How to effectively stay on your clients’ minds (for all the right reasons), even though they may not see you for months. — Paul Kingsman

9. 20 Reasons Why Your Company Should Do Less Better


Do Less Better practitioners are fanatical about focus and de-complexity; herein lies the secret of their success. Yet, do less better isn’t something most leaders embrace. The seemingly more attractive (and logical) option is to do more and more — John Bell

10. Advisors: Where Should You Start with Content Marketing?


Often advisors ask us, “How should I get started in marketing?” It’s a fair question. They just want to make sure they’re putting their time and resources in the right place. — Jud Mackrill​​​​​​​

11. The 11 Best Steakhouses in the World


Serious carnivores will go to the ends of the earth to seek out a perfectly marbled, expertly seared steak. And so, it seems, will we. We've visited the best butchers in France, reacquainted ourselves with the idea that everything (steaks included) is bigger in Texas, eaten at celebrated parrillas of Argentina, and enjoyed the elegant ambiance of metropolitan steakhouses. — Andrew Harper

Douglas Heikkinen
Perspective
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IRIS Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues to ... Click for full bio