Do The Right Thing: Put all your client’s options on the table. 

Imagine that you want to unload a poorly performing stock.  You talk to your broker who advises you to surrender it to the issuing company at 30-60% of the listed price.   You say, “What about the NYSE?”  He replies: “It’s too new and I don’t know enough about it.” 

And yet, in the life insurance industry, this exact scenario happens every day.  Thousands of insurance advisors fail to inform their clients that an unneeded or underperforming insurance policy may have a market value that is significantly higher than the surrender value.  This failure to inform is increasingly being considered in the context of the advisor’s fiduciary responsibility.

How could it not be? Clients have a range of options available to them when considering what to do with a policy that is unneeded or underperforming – surrender, lapse, life settlement, death benefit alternatives, etc. As the professional advisor, your job is to help clients rationally evaluate the options and determine the best one for their situation. 

As with any other asset, step one is an appraisal of what the policy is worth. Only then can you truly measure the merit of each option.  Only then can you realistically determine which option is in the client’s best interests.  And only then can you say for sure that you have fulfilled your ethical and legal obligations to your client. 

Considering that life settlements commonly generate three to five times, or more, than a surrender, this has become a serious issue for advisors. As awareness of life settlements continues to grow, most industry experts predict that it is only a matter of time before consumers begin taking advisors to court for failing to inform them of the life settlement option.