Last fall a certified financial planner called me about two clients. The husband and wife, both 78, had a $2 million guaranteed universal life policy sitting inside an irrevocable life insurance trust, or ILIT. They had put the trust in place in 2009 to cover estate tax back when the federal exemption was $3.5 million per person.
The One Big Beautiful Bill Act, signed last July, raised that exemption to $15 million per person. Now the couple's estate tax worries had disappeared, but the premiums had not. They were paying $38,000 a year, drawn from taxable accounts — money the couple would rather have been spending themselves.
By the time the advisor called me, they had already decided to surrender the policy back to the carrier for its cash value, around $74,000. After our talk, the advisor asked his clients to hold off for a few weeks. We took the policy to 21 institutional buyers. Nine came back with offers. The highest bid came in at $612,000 net to the trust after broker commissions — close to eight times what the carrier was going to pay on surrender.
That result wasn't unusual. The unusual part was that the call came in before the surrender forms had been signed.
Secondary market value
As a viatical broker, I often encounter seniors who either surrender or lapse a life insurance policy with significant secondary market value. In many cases where a financial advisor was involved, the life settlement conversation just never happened — not because the advisor was negligent, but because most were never exposed to it as a planning option.
Until the 2020s, major broker-dealers discouraged their reps from discussing life settlements. That stance has shifted, but the current advisor population didn't reset with it.
Many fiduciary advisors I know came up inside big firms where life settlements weren't a topic anyone raised with clients. Carriers won't willingly flag it either, since lapse rates feed their profitability. A solution missing from advisor training and paperwork stays out of the advisor-client conversation.
Fiduciary considerations for financial advisors
The question then becomes: Should fiduciary advisors with a duty of care under the
But today 43 states regulate the transactions. Apollo buys. So do Blackstone, Berkshire and TPG. Six states — Washington, Wisconsin, Oregon, Maine, Kentucky and New Hampshire — require the carrier to raise the settlement option before a policy goes away. Everywhere else, it falls to the advisor.
Life settlement pros and cons
Seniors aged 70 or older with permanent life insurance policies of over $100,000 can benefit most from a life settlement, particularly if their health has declined since the policy was issued. As mentioned above, so can clients with trust-owned policies that have outlived their usefulness due to the OBBBA's exemption bump.
It costs nothing for a policyholder to explore a life settlement. Brokers take their fee from the proceeds, which most states cap by statute. The real cost is the death benefit the heirs won't receive. That said, policies still serving their original purpose may be better left alone. Term policies without conversion typically won't qualify, and face values under $100,000 rarely do. A policy loan or accelerated death benefit rider may already be meeting the need.
For financial advisors, the needed addition to policy reviews is small but essential: "Before any surrender paperwork goes out, before we cancel, let's see if it qualifies for a settlement." If bids come in, the client gets a number significantly above what the carrier would have paid. If no bids come in, the policy is surrendered.
Ultimately, a fiduciary advisor's role is to raise the option and let the client decide.
