Wealth management is rarely about a single transaction or a lone asset. For those navigating the complexities of high net worth estate planning, it’s a symphony of moving parts where every instrument must be in tune.
As a fiduciary, your responsibility is to look at the entire landscape of a client’s financial life to ensure that every asset is performing its best. Yet, one significant asset often sits in a silent corner, overlooked and undervalued. That asset is the life insurance policy.
For years, the options for a policy that no longer fit a client’s needs were binary. You either kept paying the premiums to maintain coverage or you surrendered the policy for its cash value.
Honestly, I’ve seen so many instances where a policy is just sitting there, gathering dust in a digital folder while the client continues to write checks for premiums they don’t really need to be paying. Today, the secondary market for life insurance offers a third path. A life settlement allows policy owners to sell their life insurance policy to a third party for an amount that’s greater than the cash surrender value, though less than the death benefit. When viewed through a fiduciary lens, this isn’t just a transaction. It’s a strategic tool for liquidity, estate optimization, and proactive wealth management.
The life settlement industry has matured significantly over the last two decades. What was once a niche corner of the financial world is now a transparent and highly regulated marketplace. And this evolution is vital for advisors who prioritize transparency and client advocacy. Understanding how this market functions allows a wealth manager to provide a more holistic service.
Integrating this option into a comprehensive plan requires a change in how we think. Many advisors are now educating themselves and their clients on how to sell a life insurance policy as part of a broader exit strategy for underperforming assets. Instead of viewing life insurance as a static “buy and hold” instrument, fiduciaries are beginning to see it as a flexible asset. As life circumstances change, the original intent of a policy may no longer exist. Perhaps the estate tax liquidity isn’t needed anymore due to changes in tax law. Or maybe the beneficiaries are now financially independent and doing well on their own. In these cases, the policy should be evaluated just like any other underperforming or redundant asset in a portfolio.
Not every policy is a candidate for a settlement, and not every client should pursue one. The decision to sell a policy involves a careful balancing act of current needs versus future benefits.
It takes a discerning eye.
A life settlement is often most relevant for clients over the age of sixty-five who own a permanent policy with a face value of at least one hundred thousand dollars. A fiduciary approach involves looking at the specific “why” behind the potential sale. Is the client facing rising premium costs that are eating into their retirement cash flow? You know, those moments where you’re sitting in a quiet office looking at a spreadsheet and realizing the numbers just don’t align like they used to.
Has a business buy-sell agreement reached its natural conclusion? By asking these questions, an advisor can determine if a settlement aligns with the broader financial goals. And that is where partnership matters most. Working alongside a client’s CPA or estate attorney ensures that the tax implications and the impact on the overall estate plan are fully understood before moving forward.
A balanced perspective requires an honest look at the downsides and complexities. Selling a life insurance policy may mean the loss of the death benefit. For many families, that protection is the bedrock of their financial security. If there’s a continued need for coverage, is a settlement really the right choice? Probably not.
Furthermore, the tax treatment of life settlement proceeds can be complex. While a portion of the proceeds may be tax-free up to the cost basis, amounts above that may be subject to ordinary income tax or capital gains tax. There’s also the potential impact on eligibility for certain public assistance programs. A true fiduciary doesn’t gloss over these realities. Instead, they bring them to the forefront of the conversation to ensure the client is making a fully informed decision. And that’s the point. It’s about honesty, even when the numbers are complicated.
In this process, the role of a life settlement advisor is to act as a bridge. We don’t buy the policies ourselves. Instead, we represent the policy owner in the secondary market to ensure they receive a fair valuation from licensed providers.
We are on the client’s side.
The goal is to provide clarity in a process that can often feel opaque. This includes conducting a thorough appraisal of the policy and managing the complex paperwork and regulatory requirements. I guess you could say we handle the heavy lifting so the advisor can focus on the big picture. By acting as an advocate for the seller, we ensure that the client’s interests are protected throughout the auction process. This collaborative model respects the existing relationship between the client and their primary financial advisor while adding a layer of specialized expertise.
Integrating life settlements into wealth management is about more than just finding extra cash. It’s about reclaiming value from an asset that might otherwise be abandoned. It provides the liquidity needed to fund long-term care, diversify an investment portfolio, or make a significant charitable gift during the client’s lifetime.
But is the industry ready for this level of integration?
Maybe. But I think it has to be. When we move away from a “set it and forget it” mentality regarding life insurance, we open up new possibilities for financial freedom. It’s a way to ensure that every piece of the financial puzzle is working toward the same goal. As the financial landscape continues to shift, the ability to recognize the hidden value in a life insurance policy will become an increasingly important part of a comprehensive fiduciary strategy.
P.S. Before you zip off to your next Internet pit stop, check out these 2 game changers below - that could dramatically upscale your life.
1. Check Out My Book On Enjoying A Well-Lived Life: It’s called "Your To Die For Life: How to Maximize Joy and Minimize Regret Before Your Time Runs Out." Think of it as your life’s manual to cranking up the volume on joy, meaning, and connection. Learn more here.
2. Life Review Therapy - What if you could get a clear picture of where you are versus where you want to be, and find out exactly why you’re not there yet? That’s what Life Review Therapy is all about.. If you’re serious about transforming your life, let’s talk. Learn more HERE.
Think about subscribing for free weekly tools here.
No SPAM, ever! Read the Privacy Policy for more information.
