Term life insurance policies often make the best prospects for a life settlement. The reason is that settling a convertible term life policy can work especially well for both policyholders and investors.
Yet, strangely, term policies also represent the most frequently overlooked prospects for life settlements. That’s because there are still large numbers of producers and advisors who don’t realize convertible term insurance, including group term, can be sold in a life settlement.
From the policyholder’s standpoint, settling a term policy can be a great opportunity. Term is usually bought to cover a temporary, rather than permanent, life insurance need. When the need ends, the life insurance policy is usually allowed to lapse. A term life settlement is a great way to obtain surprise cash for a policy that would otherwise terminate without value.
For investors, settling a convertible term policy usually means that they will be buying a policy that is convertible to the latest generation of universal life. New policies often feature lower mortality rates than older policies.
Getting a new policy also gives investors the opportunity to manage the policy premium flow to maximize their internal rate of return on the death benefit. The combination of these factors makes convertible term policies particularly attractive to life settlement investors and that, of course, translates into better potential offers for your clients.
For producers, term life settlements can be rewarding as well. Not only are you discovering money for your clients, but since term policies are generally converted upon settlement, you can earn a conversion commission. Many of our term life settlements have been what we call “partial settlements.”
If the policy owner has a continuing need for the life insurance coverage, a portion of the policy can be settled. The proceeds can then be used to help the policy owner convert the remaining portion of the term insurance. That’s right: A term life settlement can help your clients keep more life insurance in force!
An important factor about term insurance and its potential for a life settlement is that, frequently, policy owners cannot procrastinate about making a decision. They are compelled to act on a timely basis or forever lose the opportunity.
Term by its very nature is limited in duration, as are the conversion privileges of most term policies. Before the clock winds down on the guaranteed premium period and the conversion privilege, a policyholder must act.
What can you, as a producer, do to make the most of the term life settlement opportunity? First, you must make certain that you monitor your clients’ term insurance policies by knowing when the guaranteed premium paying period expires as well as when the conversion privilege ends. Second, you should make other advisors like accountants and attorneys aware that term insurance can be settled — something they, all too often, do not know.
Term life insurance does a great job of covering temporary needs at an affordable price. However, once those needs have been satisfied, term policies make great life settlement prospects. You owe it to your clients to make sure that those settlement opportunities are not allowed to slip by.