Why Aren't More Agents Talking About Life Settlements?

Many agents have never spoken to a senior client about life settlements. Why so little interest in this valuable financial planning tool? For starters, not every agent is allowed to discuss the life settlement option with a client. Insurance company or broker/dealer prohibitions close the door for these agents even though a life settlement may be in the client's best interest. Let's examine some other possible reasons.

Reason #1 - "I am not familiar with the life settlement concept."

Agents need additional training in these transactions to feel comfortable discussing them with senior clients. Continuing education has not been available until recently. At least two life settlement providers have training programs approved in some states. Industry training has been available for some time. It is incumbent upon life settlement brokers and providers to offer training programs. The key is developing relationships and providing a turnkey solution, including compensation.

Reason #2 - "I'm waiting for the issue to come up."

A client may complain about the annual life premium he just received in the mail, but he probably never heard of a life settlement if you haven't brought it up. Traditional mass media outlets don't cover life settlements. Business editors and producers appear to be confused by the concept or have a vague memory of people losing money in viatical (terminal illness) settlements. The effect of this news blackout is that the senior never hears the term "life settlements" and doesn't know to ask the question to the insurance agent.

The sad truth is that many seniors are orphaned policyholders with no servicing agent. Their only contact is with the issuing company, virtually ensuring that there will be no chance of being presented the life settlement alternative. If you are in front of a client who may qualify for a life settlement, simply ask, "Has your life insurance policy been reviewed recently?" That question will be worth its weight in gold.

Reason #3 - "I manage assets. I don't do insurance."

This is a common objection from broker/ dealer financial advisors who don't understand that an insurance policy is an asset to be managed like a mutual fund or stock and bond portfolio. If you are a wealth manager and don't understand your client's life insurance holdings, you may be putting other assets at risk. Not all investments perform as intended. Poorly performing investments are often sold and replaced by other investments. A life insurance contract may also perform poorly. Perhaps, at inception, the policy illustration was shown with a projected rate of interest that is no longer attainable. The scheduled premium may no longer support the illustrated cash values or even the death benefit.

An insurance agent or financial advisor should perform an annual policy review with current ledger illustrations to make sure that policy premiums are adequate to maintain projected cash values and the death benefit. The policy review will also raise the issue of whether the coverage is adequate. Policy management also addresses the issues of replacement, insurability, and possible tax consequences.

Reason #4 - "I prefer to recommend a 1035 exchange for replacement."

This objection tells me that the agent does not understand the value that a life settlement creates or the tax consequences. Nearly half of all life settlement proceeds go into acquiring new policies, according to the Life Insurance Settlement Assn. If new insurance is to be acquired, is a 1035 exchange better than a sale in a life settlement transaction?

There are no current tax consequences to a 1035 exchange. The basis in the old life contract is transferred to the new contract and the old policy is traded in at cash surrender value to acquire the new policy.

In the sale of a life insurance policy, there may be a tax consequence upon sale if the proceeds exceed the cost basis. However, to make the comparison fair, the after-tax proceeds must be compared to the existing policy's cash surrender value. No taxpayer is in the 100% tax bracket. Also, incremental after-tax gains via sale are almost always greater than the cash surrender value. By definition, a life settlement must be greater than cash surrender value. This means that a qualifying senior has more money at their disposal to acquire a new policy. Historically a life settlement runs an average of 200% to 300% greater than cash-surrender values. While every case is different, comparing 1035 exchanges to a possible life settlement is the right way to approach policy replacement.

Reason #5 - "I don't understand how fair market value is created."

As mentioned earlier, there is an enormous spread between a policy's cash surrender value and fair market value. In real estate, the buyer and seller negotiate fair market value. The seller lists at one price, the buyer counters with a lower price, and the selling price is somewhere in the middle.

Contrast that with the competitive bidding process in the secondary market. The highest bidder gets to present a life settlement offer. Wouldn't it be nice to have 10 potential buyers bidding on your house the way they bid on your life insurance policy? A policy's cash value represents the bid of one buyer - the issuing insurance company. Do you think this valuation would be higher or lower than competitive bid?

A health arbitrage also creates the valuation gap. Insurance policies are priced based on the insured's age, sex, and health at the application date and subsequent health changes cannot be anticipated or accounted for. A buyer in the secondary market looks at the insured's current health and how health issues affect life expectancy. There is an inverse relationship between policy valuation and life expectancy.

Reason #6 - "I'm not sure how to market this product."

The market for life settlements is the senior who is generally 70 or older with a health issue that has developed since the policy application date. Institutionally funded life settlement providers buy policies on an insured with a two-year to 12-year life expectancy. Direct marketing to seniors whom you do not know may be ineffective.

A financial seminar can be an opportunity to discuss these transactions to the right audience as long as there are other topics on the table. It is much too narrow a topic to be the focal point. Not every senior owns a life insurance policy, not every policyholder qualifies, and not everyone is interested in disposing of a policy. The life settlement topic makes a good bullet point on a seminar agenda with a brief mention that it is a new idea that could generate cash from a dormant asset.

If senior seminars are not for you, there are other marketing ideas to consider. Approach CPAs, estate attorneys, and trust officers in your network about life settlements, positioning yourself as an expert. Chances are that they have never heard about life settlements or they are only slightly familiar with them. You will add value to their service offerings and will introduce them to a new concept, putting yourself in a favorable referral position.

Mention that corporate-owned policies and trust-owned policies can qualify for potential sale in addition to individually owned policies. This will trigger client prospects in their minds. You could publish an article on life settlements in a local business journal making sure your byline includes contact information. You also may want to market life settlements to those who provide other services to seniors, perhaps those who offer senior healthcare services or those who organize senior activities. Offer a compensation incentive for them to recruit prospects for you.

Finally, connect with the planned giving officer at your alma mater or local university. Universities frequently receive life insurance gifts. Most would prefer getting the cash now to waiting years to collect a benefit. A life settlement gives the university the opportunity to get immediate cash. Perhaps the university could send a letter to alumni who are approaching the age of 70 about making gifts of the proceeds of unneeded or unwanted life insurance policies. The tax deduction for donated assets is the fair market value of the asset. The deduction for the cash donation of a life settled policy would be larger than for the donated policy itself.

Selling a new financial service requires awareness, then familiarity, then expertise, then planning and creativity, commitment, and follow-through. It is not too late to add life settlements to your arsenal of product ideas. Remember, the very first Baby Boomer, who will not turn 70 until 2016, will soon be followed by millions upon millions more.

Insurance Companies Listings and Ratings Guide For Insurance Agents & Brokers

Here is the newest, revised version of the best insurance companies listings. These are compiled in a top 100 ratings guide format. The listings are in alphabetical order helping insurance agents & brokers locate an insurer. Find out how your opinion compares. How can you possibly rate an insurance company? I will mention briefly the various ways, show you the method I is used for this article, and why.

BY NUMBER OF AGENTS

This ratings guide listing method evaluates the insurer by the sheer number of insurance agents & brokers currently licensed and under contract. with carrier. I feel this evaluation to be worthless for a multitude of reasons. First of all there are a number of career health and life insurance agencies that have thousands of representatives. However, of these,up to 80% of the total agents are relatively new in attempting to establish credibility in the industry. Four years down the line only 6% of many an insurance company agency force will maintain enough production to stay career representatives.

Moreover, my findings uncover inaccuracy of this method due to licensing renewal process state insurance departments impose on the insurer. Most state departments of insurance send the renewal report forms on a yearly basis. There is a fee to be paid by each ins agent renewed. What makes it difficult is the variation of different paperwork procedures by individual states for removing non-active ins reps. The paperwork consists of costly, time consuming forms and procedures for the insurance company to make any changes. Renewing all the sales representatives is often cheaper, and thus the route the insurer frequently takes. This also gives the insurance company bragging rights to how many sales people write for them.

Personally I was shown in state insurance department records as licensed for 11 years after I wrote my last case.

INSURANCE CO FINANCIAL RANKING LISTINGS
There are four or five top independent firms that employ this insurer rating of a company based on a multitude of financial factors. A lot has to do with projecting the financial stability of the insurer. This is accomplished by closely dissecting past and present financial history. It covers how the insurer investments perform, and the rate of return. An insurance evaluation also takes in consideration the amount of cash on hand, and how much exists in reserves to pay present and future claims.

There is a consensus among life insurance association members into believing that the highest rated insurers are the best of the bunch. Yet association members make up less than 12% of the total producer base. The other insurance agents and brokers, (the majority), do not agree that these are always the best ones to use for their client's needs. Logic tells you that a newer quality insurer does not have past history to start out top ranked. In my situation, clients bought what I presented them. Nearly half the time it was NOT the highest rated company by the rating firms. I however sold the client what their emotional needs demanded. Many past insurance companies with rankings in the best 100 later financially failed, and still frequently do in today's world.

BY RANKING OF PREMIUMS COLLECTED

This is a very common type of insurance company listing & ranking to produce. Insurance companies are rated by total number of premiums they collected that year. It seems rather unfair to mix annuity premiums in with all dollars collected. Producers know it is easier to sell a $20,000 annuity than a $20,000 premium term insurance policy. The other fault I find with using total premiums collected is with who actually contributed a chunk of the premiums collected. With some companies an enormous amount of these premiums were not collected by the average sales person. A lot of institutional buyers directly bought hundreds of thousands of dollars of annuity premiums.

BY RATINGS IMPORTANT TO HEALTH & LIFE SELLERS

This is my way. As fair and balanced from an sales representative perspective as feasible. Premiums are collected from the 1,500,000 agents, trying to make a living by selling insurance policies in this industry. Often these sales are done one by one. Plus, of this 450,00 independent brokers, semi-independent agents and some career reps write, depending on which company, 50% to 100% of that insurance co business.

This rankings method is imposed because I find the insurance companies listing is intended to be a beneficial directory. One that independent brokers, semi-independent representatives, along with some career reps can turn to. This is a guide directory to other insurers that you may consider writing production for.

The insurance companies listing and ratings guide to the top 100 is purposely placed in alphabetical order instead of by premium or financial data. You may not agree completely with the listing, because we have left in some companies with a strong percentage of business sold in annuities, and investment products.

In the eyes of a typical health and life broker, this guide is of health and life insurance companies is about as accurate as possible.

1. Aetna 2. AIG Life Insurance Company** 3. Allianz Life Insurance Company of North America 4. American Family Life Assurance Co of Columbus 5. American Fidelity Assurance Company 6. American General Life and Accident INS Co** 7. American General Life Insurance Co** 8. American Income 9. American Memorial 10. American National Life 11. Americo Financial Life And Annuity 12. Anthem Blue Cross 13 Aurora National Assurance 14 Aviva Life and Annuity Company 15. AXA Equitable 16.Bankers Life and Casualty Company 17. Banner 18. Beneficial Life 19. C.M. Life Ins 20. Colonial Life & Accident 21. Columbus Life 22. Conseco Life 23. Farmers New World 24. First-Penn Pacific 25.Forethought 26. General American 27. Genworth 28. Gerber 29. Great American 30. Great-West Life & Annuity 31. Guardian 32. Hartford Life and Accident Ins Company 33. Hartford 34. Homesteaders 35. Indianapolis Life 36. ING 37. Jackson National 38. John Hancock 39. John Hancock Life Insurance Company USA 40.. Kansas City Life 41.. Lafayette 42.. Liberty Life Assurance Co of Boston 43.. Liberty National 44.. Life Ins Company of North America 45. Life Ins Company of the Southwest 46. Life Investors Ins Co of America 47. Lincoln Benefit 48. Lincoln Heritage 49. Lincoln National 50. Massachusetts Mutual 51. Metropolitan 52. Midland National 53. Minnesota Life 54. Monumental Life 55. MONY - America 56. MONY - New York 57. National Guardian 58. National Life 59. New England Life 60. New York Life Ins and Annuity Corporation 61. New York Life 62. North American Co for Life & Health Ins. 63. Northwestern Mutual 64. Ohio National Life 65. OM Financial 66. Pacific Life 67. Penn Mutual 68. Phoenix Life Ins 69. Primerica 70. Principal 71. Protective 72. Provident Life and Accident 73. Pruco 74. Prudential - America 75. Reassure America 76. Reliance Standard 77. ReliaStar 78. Riversource 79. Security Life of Denver y 80. Standard 81. Stonebridge 82. Sun Life and Health 83. Sunset 84. Surety 85. Symetra 86. Transamerica 87. Transamerica Occidental 88. Trustmark 89. U.S. Financial 90. Union Central 91. Union Security 92. United Healthcare 93. United Ins Company of America 94. United Investors 95. United of Omaha 96. United States Life 97. Unum 98. West Coast 99. Western and Southern Life 100. Western Reserve Life Assurance Co of Ohio Note: Sagicor Life, Foresters, and Illinois Mutual should appear on the bottom 3 listings, replacing the companies listed above as #6, 2, and 7.

**AIG Life Insurance Company, American General Life, American General Life and Casualty Comments

This group of companies USED to be one the highest premium generating, and highest ranked insurance companies in the United States. Still, after two massive Federal Bailouts, the future is uncertain. Therefore, AIG Life is no longer deserving of being on this top 100 list guide.

GUIDE TO QUESTIONABLE LIFE INSURANCE COMPANY LISTINGS

The following insurance companies listings often could be included in different types of some top 100 Life ins company rankings IF you were evaluating premiums written. Sometimes the premiums consist of considerable amounts of annuity premiums. Also counted in would be insurers where a large portion of sales do not come from representatives and sales people. Instead it is written by security stock brokerage firms, and independent broker-dealers of variable investment contracts not governed by insurance departments. In other cases, products may be directly strictly toward teachers, the military, or credit unions. In a couple cases, there are companies with pending litigation. A representation of this mix of insurers is listed below:

1. Cuna Mutual 2. Genworth Life and Annuity 3. Harford Life and Annuity y 4. John Hancock Variable Life 5. Mayflower National 6. Metlife - Connecticut 7. Metlife Investors USA 8. MML Bay State 9. Nationwide 10. Nationwide Life & Annuity 11. NYLife of AZ 12. PHL Variable 13. Sun Life Assurance Co of Canada 14. Teachers Ins and Annuity Assoc of America 15. USAA 16. Shenandoah -- financial difficulties

There is a grand total of over 600 Licensed Life/Health Companies "active" in every state of the United States. However, some are not currently writing new business. In addition, there are many active in only one or a few states, so you will find them missing from the top insurance company listings. Most states have a true actual listing count of 220 to 330 life and health home offices currently accepting new cases from licensed agents & brokers.

Advisor's predition. If I choose from the provider listings above, Foresters would be my top pick as the next rising star. Its innovative niche products are starting to create a high demand. Also watch Genworth, its stock value has zoomed and the company is very adaptive to market opportunities.