For your clients in their 70s with maturing convertible term policies, time is running out to exchange these policies, and a life settlement might just be the best available option.
Life insurance settlements offer the opportunity to help clients evaluate the dwindling asset value of convertible term life insurance policies nearing expiration. In the right situation, a policyholder can cash in by first converting to a whole or universal life policy, then selling the permanent policy to a life settlement provider.
In such a case, the term policyholder avoids the higher premium costs associated with most convertible policies and receives cash proportionate to the value of the new asset.
Life settlement funding companies, recognizing this trend in the market, are now offering annual valuation programs to help with the decision-making process. Illustrations and projections, provided free of charge, help determine the viability of a conversion, costs and ultimately what a life settlement payout may look like. The tools are in place for agents to make easy, annual evaluations of policies for possible “term-to-perm-to-life-settlement” transactions.
Here’s how you do it
In the last 20 years, the life settlement industry has grown substantially and now purchases billions of dollars’ worth of life insurance policies annually. Agents are the key to this success, as they hold a wealth of information about policyholders and their personal and family situations.
Settlement providers receive the applications, process and underwrite them. And they prepare settlement offers with sources of capital prepared to purchase the policies for cash. Term policies are particularly attractive if you draw up a strategic plan.
Know your clients
The first step is to review your client portfolio for customers whose convertible term policies are nearing maturity. In particular, people who purchased large face-value policies a decade or more ago may encounter increased premiums in order to renew or convert.
In today’s economy, coverage may appear less attractive than the cash. The temptation is strong to simply let the policy lapse at maturity without perceiving any potential asset value at all. Your advice can make the difference between a customer selling their policy and receiving a cash payout, and them simply letting the policy lapse. Understand their life insurance needs
Most, though not all, term life insurance policies are convertible. It is likely that you have advised term buyers to pay the slightly higher premium so that their policies can be converted in the future and to make sure that they remain insurable. The customers who heeded your advice comprise your potential market, and now is the moment that your counsel can pay off for them.
Older customers may not be aware of, or have forgotten about, the conversion option. Among your convertible term policies in force, how many are due to expire in the next few years? Particularly for a term policyholder who is elderly, sick, or not otherwise eligible for a new, permanent policy, converting that term policy might be the only option for them to keep coverage. Thus, a term-to-perm conversion could be a windfall.
Seniors with at least $500,000 in convertible term life insurance coverage are the most obvious candidates. A life settlement appraisal requires you to prepare a simple application and obtain permission to access the policyholder’s medical records.