But it’s a fact that many people – both financial advisors and their senior clients alike – are uncomfortable with raising or discussing the topic of life settlements because they are, essentially, a financial engagement that is directly connected with the client’s death.
Similarly, the decision to purchase a life insurance policy was driven by financial planning considerations. The fact that someone else (usually a large investment fund or company), and not the insured’s original intended recipient, will receive the death benefit upon the passing of the insured is not the point. Life insurance is a financial planning tool and should be evaluated like other financial assets – how is it performing, how will it continue to perform, and does it make sense to hold it instead of selling it? If not, then it should be liquidated.
In fact, we would go so far as to argue that every financial advisor has a moral duty, if not contractual obligation, to inform their clients about the possibilities that they have when thinking about what to do with an unneeded or unwanted life insurance policy. And clients owe it to themselves and their loved ones to consider their financial options carefully and without emotional prejudice, so as to choose the best course of action.
All in all, both financial advisors and owners of life insurance policies who want to sell them should think about life insurance policies in a pragmatic, rational way. They should accept that discomfort and the “ick” factor regarding the idea that someone will profit from the insured’s death is misplaced and unhelpful to the holder of the policy. Without a level-headed, rational appraisal of the options availabe, an opportunity to get rid of an unneeded or unaffordable policy, and receive a payout several times larger than a simple surrender of the policy to the life insurance company would provide them.
View a life settlement policy as a rational financial planning instrument that can improve your or your client’s quality of life and financial situation, and it should become clear that discomfort with the idea of a life settlement is simply not a rational or reasonable reaction.