Are your clients tired of paying high premiums on a life insurance policy that no longer offers what they need?

Don’t just let it lapse: It may be worth more than they realize. Life settlements, or selling policies to third parties, offer holders a chance at a higher return than they might get from simply surrendering them. There are many reasons to sell a life insurance policy, according to Bryan Nicholson, executive director of the Life Insurance Settlement Association, from bolstering retirement income to covering the cost of long-term care. There are likewise reasons to be cautious when weighing options, especially if clients experience aggressive sales tactics. What’s clear is that financial advisors with knowledge of the life settlement process can help see them through.

“From our experience, it’s worked out well in the right situations,” agreed Joon Um, advisor at Secure Tax and Accounting in Beverly Hills. “It can be a bit involved with underwriting, life expectancy reviews and multiple offers, so it’s not always quick.”

Life Settlement Pros and Cons

Before the emergence of the modern life settlement market (which is an interesting story in itself), individuals had to surrender their policies or wait for them to lapse in order to get out. Today, they can solicit cash bids on their policies from institutional buyers who analyze factors like the insured’s age, health and policy premiums to submit competing offers. The process frequently results in a payout greater than the policy’s cash surrender value.

According to 2024 market data from the Life Insurance Settlement Association, sellers received a multiple of 6.5-times the cash surrender value, Nicholson said. The data also found:

• “The average individual payout was $222,807.
• In aggregate, sellers were paid $511 million more than they would have received by simply surrendering or lapsing their policies.

The main things to watch are taxes, fees and making sure the client is fully comfortable giving up the policy, Um told Retirement Upside. In some cases, keeping or restructuring the policy makes more sense, so it’s important to have an open mind. “Overall, it can be a good option, but very case-by-case,” Um said.

A Missed Opportunity. While not everyone will be well-served by life settlements, Nicholson said, significant benefits are being overlooked: Each year, roughly $50 billion in policies that could qualify for life settlements are instead lapsed or surrendered. This happens most often because the policyholder was simply never told another option existed.

The clearest candidates are policyholders whose circumstances have changed materially since the policy was originally purchased. In practice, that often looks like someone over the age 65 holding a large universal life policy, where premiums have increased over time and the policy no longer fits their financial priorities. Policyholders who are post-mortgage, whose children are financially independent, or whose estate-planning priorities have shifted are also natural candidates. Funding long-term care is another common use case, but whatever the goal, proactive planning is key.

“Advisors should treat periodic policy appraisals as a standard part of the retirement planning conversation, not just a reactive step taken under financial pressure,” Nicholson concluded.

They’ve already worked for decades. Ugh … What’s a few more years?

Many Americans expect to delay retirement by four years due to increasing living and healthcare costs, as well as under-saving and tapping into retirement funds early, according to research from Economist Enterprise. While plenty of those people will have to remain in the workforce for a couple of victory laps, advisors say some clients are driven solely by the dread of outliving their funds. A renewed retirement discussion may be a way to help calm clients’ fears about expenses in their golden years.

“People often fear running out of money more than death itself,” said Gregory Guenther, managing director at GRANTvest Financial. “Even people who have saved well can feel uneasy once the steady paycheck is about to stop.”

Quittin’ Time

Americans are playing the long game, but they might not have the best strategy. More than 60% of survey respondents said they prioritize job security over better benefits and higher pay, which in turn can limit mobility and skill development.

The whole idea of retirement has changed, too, Guenther told Retirement Upside. “For many, it’s no longer about completely stopping work at a certain age,” he said. “It’s more about having the flexibility to work less, work differently or spend more time doing things that feel meaningful.” He added that many of his clients have transitioned into consulting, mentoring, volunteering or part-time work because they enjoy the sense of purpose.

The Economist Enterprise report also found:

• More than a third of workers have taken loans from a retirement account or hardship withdrawals from their 401(k)s because of financial pressures.
• Gen Z workers have the most dour outlook on retirement, expecting to work on average five years longer than they would like to. As income lowers, that timeline increases to six years.
• Only a fifth of respondents say they plan to delay retirement because they enjoy their work.

In for the Long Haul. While 67 is the full retirement age recognized by the Social Security Administration, the median age when people exit the workforce is 62. Often, it’s less a choice and more a product of burnout, health issues or layoffs. Those who stick around, however, often do so to soothe their egos, said Flavio Landivar, an advisor with Evensky & Katz Wealth Management. “Simply stepping away is something they are not ready for,” he told Retirement Upside. “The key is really making sure you think of what’s next, and what are you retiring or repurposing to.”

More money, more problems? Yes and no.

Even with the criticism leveled at the 401(k) plan industry, it has helped baby boomers accumulate massive retirement wealth. Many spent years doing what they were told: maxing out contributions and leveraging tax-deferred, compounding growth over decades. After years of strong (if volatile) market returns, affluent boomers’ account balances are sky-high. So, too, is the amount of risk they face in retirement, raising the demand for tax-savvy decumulation and longevity planning. Forward-thinking advisory firms are taking note.

“There’s a big group of baby boomers out there who have found themselves sitting on $3 million, $5 million or even $10 million in net worth, much of it in retirement accounts,” said Debbie Taylor, Carson Group’s chief tax strategist. “Even a decade ago, they couldn’t have dreamt of reaching balances like these. They’re not trained on how to unlock these gains and manage this wealth through their retirement.”

It turns out that many advisors aren’t either, having been solely focused on the accumulation question. That’s why firms across the industry are investing in tax planning capabilities, including Carson and its AI platform, affectionately named Steve. To Taylor, it’s an extremely exciting time to be a tax expert, and one thing is very clear: desirable clients are going to vote with their feet.

A Modern Tax Planning Strategy

Taylor’s own firm was formally acquired by Carson Group in 2024, and while it wasn’t the largest deal by any means, Taylor Financial’s specialized tax planning capabilities were expected to make a big difference for both advisors and clients.

“What’s so exciting about this moment is that the technology has progressed far enough to allow us to be so much more efficient,” Taylor explained. “The old way required advisors to move between three or four different platforms to manually gather client data, and then you’d have a 15-column spreadsheet that you used to generate a thoughtful tax recommendation. Totally not scalable or profitable.”

What used to be manual and time-consuming is fast morphing into a fluid, efficient planning process for both the advisor and the client across the industry. Rather than simply deferring taxes, the goal is to consider both the accumulation phase and the distribution phase at all times, coordinated at the household level.

Ante Up. “This type of planning is becoming table stakes for the wealthy baby boomers that many firms want to serve,” Taylor said. “They’re facing large RMDs, they have big questions about estate planning and they don’t know how to structure their income. Distribution planning is so critical, but many firms aren’t giving it the attention it deserves.”