“Why won’t they give me an offer on my client’s whole life policy?” is a question we often hear. Only on rare occasions are we able to get a life settlement offer on a traditional whole life policy.
When we tell this to producers who advocate traditional whole life insurance, they sometimes take this defensively as an attack on the merits of whole life insurance. Yet nothing could be further from the truth. Whole life insurance isn’t attractive as a life settlement because of its strength, not its weakness.
Unlike universal life, traditional whole life insurance endows. This means that cash values build up over the life of the policy so that, at some age, the cash value equals the death benefit.
As a result, there is always a positive correlation between the cash surrender value and the death benefit. In a sense there is always a built in “life settlement value.” Additionally, since life settlements involve older insureds, the cash value is often quite substantial, leaving little net amount at risk.
Two of the strengths of universal life are premium flexibility and lower premiums (at least initially). These attributes mean, from a death benefit standpoint, universal life can be an attractive choice.