What I didn’t know……

Thanks to the Minnesota Bankers’ Association for publishing this article in their March/April 2015 edition of MBA News.

What I Didn’t Learn in 42 Years in the Banking Industry

It’s hard to believe, but as bankers we really don’t know everything about the financial industry, even with 42 years of experience in the industry. Certainly our customers and clients think we know everything about finance, both personal and business including the legal aspects of retirement accounts, second-to-die insurance policies, and asset-based lending.

The credit, investment, and cash management businesses have grown tremendously since I began my career in banking with the benefit of technology enhancing the capabilities we are able to offer our customers. Each area has become more specialized with faster throughput and more extensive programming. Over time, we all become generalists. We may have an area of expertise, but it’s impossible to know everything. Some times, it’s even difficult to have a general understanding of the most recent offerings available.

Traditional bank

Traditional bank

As a banker, it’s important to be informed and able to help customers, friends, businesses and the community. Others view you as a credible advisor and leader in your community. What I didn’t know during my 42 years in banking could be useful to you. It can:

Help individual clients            Help businesses

Help families                             Help non-profit organizations

Provide a service to the community

I’ve heard unfortunate stories where:

  • Businesses weren’t able to fund their growth or transition to the next generation
  • Individuals gave up a lifetime of policy payments due to a lack of knowledge
  • Non-profit organizations didn’t accept potential contributions because they didn’t understand their potential value, and
  • Individuals weren’t able to fund long-term health care before they needed it.

Don’t let your clients fall into these situations. There can be solutions. This is really about helping your clients uncover assets they didn’t even know existed!

Banking today

Banking today

Historical Perspective

In 1911, the U.S. Supreme Court ruled that life insurance policies were personal property. The consequence of that was significant because it meant that life insurance policies could be sold, virtually creating a secondary market even before the mortgage industry! Since then, new technology has allowed for improved process, private equity investors have acknowledged the value of purchasing life insurance policies and insured’s are slowly becoming aware that options exist to receive more than the cash surrender value for their life insurance policies. Even more important, strategic advisors are becoming aware of the opportunity to receive more than cash surrender value for seniors with life insurance policies.

As in many developing industries, there have been some “bad actors”, but most states have enacted new regulations to protect consumers and that has provided an effective financial planning tool for many. Minnesota is one of those states that has enacted regulations to educate and protect citizens.


So why would someone want to cash-in their life insurance policy? Wasn’t it initially purchased to protect a family if the insured died prematurely? Here are some typical reasons why cashing out a life insurance policy may be appropriate:

  • family situation (heirs) changes
  • business is sold or transferred to the next generation
  • premiums increase or are no longer affordable
  • other investment or purchases are desired, or necessary.

These are only a few reasons why people cash out their life insurance policies. There are hundreds of reasons to cash out a life insurance policy once people understand the freedom and liquidity it can provide them, in addition to no longer having to make the premium payments. These reasons go beyond that of the individual; businesses and non-profit organizations also have plenty to gain by understanding the significant opportunity of a life settlement. Here is an example of each:

Businesses – many businesses have term life insurance on their key executives and owners. Most often, at retirement or during the sale of the business, the term policy is allowed to lapse and everyone is excited because the annual premium no longer needs to be paid. Whoa! There could be tremendous value in that term life key man policy. Most term life policies have convertibility features, and therefore can be converted to another life policy type that can be sold immediately after conversion thereby eliminating premium payments and receiving cash!

Non-profit organizations – this is where you can really add value to your community and favorite non-profit. Oftentimes, a life insurance policy may be donated to a non-profit where they are expected to maintain the annual premium payments until the donor passes away. These annual premium payments can be problematic for the non-profit; or, because of cash flow constraints life insurance policies may not be accepted for donation. Since you now know that a secondary market exists for life insurance policies, be certain your local non-profits are aware as well.

Individuals – oftentimes financial situations change, heirs change and new investment or purchases are desired. Some individuals purchased excess life insurance 10+ years ago to cover their estate taxes. Since some of those tax rates have decreased, the additional life insurance is no longer needed. In an effort to decrease annual premium payments, many policyholders are eliminating their life insurance. Even if it is term insurance that is being eliminated, be certain to counsel your customers to consider options before they allow their policy to lapse.

As the general population continues to age, the secondary market for life insurance will continue to expand. As more strategic advisors become aware of this financial planning tool, its use will expand. With the possibility of receiving seven times the cash surrender value, it is the fiduciary responsibility of every financial advisor, banker, attorney, investment representative, insurance agent, CPA and family member to understand the benefits of selling one’s life insurance policy.

You know that one bid or quote doesn’t make a market. The same is true with life settlements. If you pursue a life settlement, be certain to get multiple quotes, or deal with a firm that can bid out the policy to multiple private equity firms ensuring your clients get the best return possible.


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