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Life Health > Life Insurance

Ask the expert: Do conversion options make for a better deal?

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The question was: Generally speaking, will a $1 million 20-year level term policy attract a better settlement offer if it has a conversion option for the full term period versus no conversion option or a very limited conversion option?

The answer is: In general, a $1 million 20-year level term policy with a conversion option is a more viable life settlement prospect than a policy with a limited or no conversion option. Ultimately, the value of a term policy as a life settlement is dependent upon the permanent policy it can be converted into and the person it is insuring.

Currently, institutional buyers are not purchasing non-convertible term policies as they carry too much inherent risk that the policy may not mature with a death benefit before the end of the term. For this reason, convertible term policies are more attractive for life settlements.

When evaluating a convertible term policy for purchase on the secondary market, buyers are actually most interested in the permanent insurance the term policy will convert into. In fact, when term policies are sold they must be converted into a permanent policy before the seller receives the sale proceeds.

In today’s market, even convertible term policies have some considerations that may affect their sale on the secondary market. The mortality tables and life expectancies on which the industry bases pricing assumptions have become more conservative in the last two years. As a result, the minimum age of an insured that buyers will typically consider for a policy’s sale has risen. Therefore, finding a policy insuring a person sufficiently old enough to be an attractive insured to buyers, but still within a policy’s conversion period, may be a challenge.

For questions about the viability of any life insurance policy as a life settlement, it is always best to talk with a licensed life settlement broker that can provide insight into the current appetites of institutional buyers.

Christian Evulich
Vice President of Business Development
Amitra Financial
Oceanside, Calif.
[email protected]


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