A Case Study For Using Life Settlements
June 30, 2015
by Stephen Terrell
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Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
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The statistics are published everywhere: Thousands of baby boomers are retiring every day. And this “best insured generation of all time” also struggles with paying bills and managing retirement expenses. Life settlements seem like a logical option, but how should advisors introduce the concept to clients and what do the transactions look like? Are they a good deal or not? Many are clamoring for details.
I recently sat down with one financial advisor who truly believes that life settlements serve a great purpose for the right client in the right situation. And his case study is emblematic of how these transactions, which enable a senior to sell a life insurance policy for immediate cash, can be an appropriate option for the right client.
Advisor C.J. Christensen of Krupin Partners, LLC in Beverly Hills prides himself on learning about his clients’ needs and then offering options. And he’s the ultimate soft-sell guy.
”I know it sounds corny, but to me, all of my friends aren’t clients, but all of my clients become my friends,“ said Christensen.
For one recent transaction, Christensen made a connection with a senior through the client’s son. The father was aging, in his seventies, and continued to handle his own finances, but he had begun running decisions by his son as a matter of practice.
”One day the son called me and said that his father had two policies that were becoming burdensome and that he convinced his dad to speak with me,“ Christensen said.
It was a classic situation; the father had the same insurance agent for 30 years, but hadn’t heard from him in 10.
Over the course of several conversations, Christensen learned that the client hadn’t been paying into the policies for about a year as he worked on paying off a mortgage and managing other costs. Lean performance from his overall portfolio didn’t help the cause either. Paying the premiums was becoming difficult, and a life settlement was an option the client hadn’t yet considered.
But a life settlement wasn’t a done deal from the outset.
According to Christensen, clients get attached to the idea that they have been paying-in for a long time, and they are happy that their kids will get the money when they pass away. In these situations, he often starts the conversation by discussing life settlements with retained death benefits. With this type of transaction, the client keeps a portion of the death benefit and sells the remainder of the policy to a life settlement company. Retained death benefits are a fairly new concept and aren’t available in all states at this time.
In many cases, according to Christensen, once clients see the illustrations and the potential for an immediate cash payout, they decide to sell the whole policy instead.
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