Policy Review: The Initial Step in the Life Settlement Process

October 29,, 2018 

Life insurance is an essential component of estate and business planning. Whether the coverage is purchased for income replacement for a spouse or children, for tax planning, or as a key man policy to fund a buy-sell agreement in the event a business owner dies, life insurance is critical to maintaining financial stability for those left behind if the insured passes away prematurely.

But as circumstances change, it’s important to routinely verify that existing life insurance coverage is still aligned with the insured’s current needs and remains relevant to one’s estate plan. For example:

  1. What happens when business owners retire and key man policies become obsolete? 
  2. What’s the solution when Trust-Owned Life Insurance (TOLI) is no longer relevant for legacy planning?
  3. What are the options for an underperforming policy that has become too costly to maintain?
  4. How can a policy owner unwind a problem policy while maximizing its liquidity value in order to use the proceeds for other investments?
While a life settlement may be the most sensible solution for clients facing some of these scenarios, arriving at that conclusion typically occurs following a thorough review by a qualified professional of the client’s portfolio of life insurance assets.

The Advisor’s Role in Monitoring Policies

Advisors can demonstrate that they have the best interests of the client at heart (exercising fiduciary duty) by offering to conduct annual reviews of their clients’ life insurance assets. Senior clients with underperforming life insurance policies or seniors who are burdened with expensive premiums for policies they do not need or want will be relying on their financial or insurance advisors to recommend the most favorable options. In many instances, a life settlement is far more advantageous than allowing a policy to lapse or accepting a small cash surrender payment. 

With regard to TOLI policies, advisors are aware that many trustees (whether they are family members serving as trustees or professional trustees), often view life insurance as a long-term asset that is not intended to mature for many years. Unskilled or amateur trustees do not have the qualifications or expertise to actively manage the complexities of life insurance policies. Consequently, some trustees may overlook the fact that life insurance is an asset that must be actively managed and monitored. Irrespective of training or background, a trustee has a fiduciary duty to administer the trust’s assets in a prudent and impartial manner for the benefit of the trust’s beneficiaries.

Insurance-licensed advisors have an opportunity to “save the day” by offering their expertise to conduct annual reviews for individually owned or trust-owned life insurance policies.

Policy Reviews ─ Questions to Consider

  1. Is the policy under-performing and at risk of lapsing due to the sustained low interest rate environment?
  2. Is the policy no longer needed due to increases in the federal estate tax exemption?
  3. Have COI premium hikes caused the policy to become too expensive? 
  4. Is the coverage no longer needed for estate planning due to changes in family situations? 
  5. Has a key man retired from a business or planning to sell the family business?  
  6. Is liquidity needed for LTC/medical care? 

Options to Discuss with Client


  1. Let the policy lapse? 
  2. Surrender policy for small cash payment? 
  3. Reduce death benefit to lower premiums? 
  4. Conduct a Section 1035 Exchange into a new policy? 
  5. Life Settlement: Sell policy in the secondary market for approximately 3 to 4 times the cash surrender value? 
  6. Sell policy, but retain a portion of death benefit coverage while reducing (or zeroing out) premiums for life? 
  7. Sell policy and invest cash into a SPIA or help fund the annual premiums for a Medigap policy?


Next Steps for Advisors

Financial and insurance advisors can demonstrate fiduciary duty for clients and trustees by offering their expertise regarding the management of life insurance assets. Volunteering one’s time to help clients and trustees with the complexities of policy reviews can engender the trust of clients and other members of the estate planning team. Gaining trust is also a first step to generating new business and receiving more professional referrals.

As a next step, advisors should consider evaluating their current book of business as follows:

  1. Evaluate older UL policies when interest rates being credited to cash accounts were higher
  2. Evaluate UL policies impacted by recent COI increases
  3. Review the status of clients who are retired business owners with key man policies
  4. Review non-individually owned policies (e.g. TOLI, BOLI, COLI, etc.)


Once the decision is made to sell a policy in the secondary market, advisors have a fiduciary duty to help the client receive the highest possible value for their unwanted asset. That’s why it’s important to choose  a life settlement broker like Asset Life Settlements who will shop the case to multiple buyers in pursuit of the highest possible offer.

If you have questions about this article or would like to discuss a potential life settlement case, we will be happy to answer your questions and provide an immediate pricing analysis. Call us at 1-855-768-9085.