Rising Inflation Means Financial Professionals Must Rethink Life Settlements

Written by: Lucas Siegel | Harbor Life Settlements

With consumer prices hitting 40-year highs on everything from gasoline to housing, today’s economy certainly isn’t compatible with cash-strapped Americans. An 8.6% rise in consumer goods coupled with over 50 million seniors in the US living off a tight fixed income means a retirement crisis is already brewing.

In the face of economic uncertainty, financial advisors must give their clients the proper guidance to capitalize on every dollar tied up in their assets. And despite decades of misconceptions and avoidance of life settlement transactions, it's undeniable they will play a critical role in getting seniors the funding they need to rise above the nation’s financial crisis. With some $200 billion in life insurance being lapsed or surrendered annually that could have been sold on the secondary market, not putting life settlements on the table is simply a missed opportunity for both you and your client.

Why life settlements are underutilized

There are various factors contributing to the industry overlooking life settlements. Many broker-dealers simply avoid recommending them because they believe they are a liability or underregulated. Life settlements have been legal for many years, and are now heavily regulated in most states. Additionally, the only time life settlements have led to a legal dispute has been in cases where they should have been recommended, but weren’t.

Historically, life settlements have also simply been overlooked or forgotten by industry professionals. Oftentimes, policyholders are steered in the direction of surrendering or lapsing their life insurance policy. This is not a comprehensive overview of what the true value of that policy is, and will only yield a fraction of the amount one would get from selling. Paying for a policy that is no longer needed or surrendering the policy are not financial strategies, they are wastes of wealth. In fact, 90% of policyholders would have sold their policy if they knew it was an option.

At the end of the day, if you have a fiduciary relationship with your client, you may be required to educate them about life settlements, especially if they are considering not keeping the policy active. No one benefits from lapsing a policy besides the life insurance company, which is why it’s vital to find out what it would be worth if it was sold. For Americans battling inflation and struggling to live off their retirement income, forgoing policy premiums for a cash payout will yield far more than any other option.

Life settlements offer monetization opportunities for financial professionals

Life settlements are a win-win for broker-dealers and their clients. Not only do they give policyholders the ability to access funding when needed, but they also offer referral fees. Most life settlement companies and brokers will compensate those who recommended them after the transaction is closed. Additionally, once the sale has concluded, financial professionals can and should provide guidance on how to reinvest that money based on the client’s current financial standing.

Transparency is now at the forefront of the life settlement industry

Until now, it took months for financial professionals to understand and identify which life insurance policies have value and provide the proper guidance. A primary cause for this is Cost of Insurance (COI) data being gated by life insurance companies. COI incorporates several variables such as when the insured purchased the policy, how old they were when they bought it, their health at the time, and the policy type, which determines how much each policy is worth.

However, advancements in machine learning technology have changed the landscape of the life settlement industry. Financial professionals can now use a life settlement calculator to evaluate their entire book of clients in a matter of minutes and identify which would benefit from a life settlement. Technology makes the life settlement decision process easier than ever so advisors can understand their client's full financial picture and provide the right guidance, especially during times of economic distress.

The future of life settlements is bright

The life settlement industry is growing 34% per year on average and is expected to be worth $212 billion by 2028. A large percentage of adults 65 and over forewent their stable incomes to retire during the pandemic, and are now spreading themselves thin in order to live off those savings. As inflation continues to accelerate, life settlements will help unlock billions in funding so seniors can live out the retirement they deserve.

Related: Everything You Need To Know About Life Settlements

Lucas Siegel is the CEO of Harbor Life Settlements & Harbor Life Brokerage, which offers the world’s most advanced life settlement auction site and the first-ever AI-powered life settlement calculator. Since its launch in early 2020, Harbor Life Online Exchange has listed hundreds of millions in life insurance policies for sale and has been pivotal in transforming the industry standard.