As a financial advisor, you’re always looking for new ways to help clients optimize their financial plans and generate value from underutilized assets. One such opportunity that remains widely underused is life settlement. By identifying the right candidates for life settlements, you can help clients unlock hidden liquidity, improve their retirement outlook, and reduce the financial burden of unwanted policies.
But how do you know which clients are a good fit?
This article explores the key characteristics of ideal life settlement candidates and how you can proactively spot these opportunities within your book of business.
Who Qualifies for a Life Settlement?
A life settlement is the sale of a life insurance policy to a third-party investor. The policyholder receives a lump-sum payment, greater than the surrender value and less than the death benefit, in exchange for transferring ownership and premium obligations. The buyer then becomes the beneficiary of the policy and collects the death benefit when the insured passes away.
While every policy and situation is unique, ideal candidates typically fall within the following general parameters:
- Age 65 or older (younger individuals with serious health conditions may qualify)
- A life insurance policy with a face value of $100,000 or more
- Policy types: Universal life, whole life, term (convertible to permanent), and some variable life policies
- A noticeable decline in health since the policy was issued
- The policy is no longer needed, wanted, or affordable
If a client meets several of these criteria, they may be a strong candidate for a life settlement.
Common Client Scenarios That May Indicate Suitability
Many clients who could benefit from a life settlement don’t know the option exists—or assume it’s not relevant to them. Here are a few common scenarios where a life settlement may be worth exploring:
1. Retirees with Changing Financial Needs
Older clients often reassess their financial priorities. They may have purchased a policy decades ago for income protection, but now their children are financially independent, and they no longer need the coverage. If premiums have become a burden, selling the policy may provide much-needed relief or cash for retirement.
2. Clients with Diminished Health
Clients experiencing health challenges may qualify for significantly more value in a life settlement. Investors often pay more for policies on individuals with reduced life expectancies, which means these clients can receive a higher payout than expected.
3. Term Policy Conversions
If a client owns a term policy approaching its expiration but the policy is convertible to a permanent one, a life settlement may be possible. In some cases, converting and selling the policy yields more than simply letting it lapse.
4. Business-Owned or Key Person Policies
Business owners often hold key person or buy-sell agreement policies that are no longer needed after a change in business structure. Instead of lapsing, these policies can be sold, helping to recoup some of the premiums invested over the years.
5. Estate Plan Adjustments
Clients who initially purchased policies to offset estate taxes may no longer need the same level of coverage due to tax law changes or asset depletion. A life settlement can convert unneeded coverage into flexible liquidity.
Spotting Opportunities
You don’t need to become an expert in life settlements to add value. You do need to ask the right questions. Consider integrating a life settlement assessment into your regular policy reviews, especially for clients over 65 or those with changing circumstances.
Good questions to ask include:
- Do you still need this policy for its original purpose?
- Has your financial situation or health changed since purchasing the policy?
- Are premiums becoming difficult to maintain?
- Have your beneficiaries or estate planning needs shifted?
If the answer is “yes” to any of these, a life settlement evaluation may be worth pursuing.
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Delivering Client Value
Life settlements offer a unique way to create value for clients, especially those with policies they no longer need or can afford. As an advisor, identifying ideal candidates is a critical first step in offering a broader, more strategic approach to financial planning.
By knowing what to look for, you can help your clients turn a burdensome policy into a powerful financial opportunity.
