Life settlements should be viewed as an alternative to lapse or surrender, not as an alternative to keeping the coverage.
Once your clients understand this, it opens up the possibility to do one more good thing for them before their policy is terminated. Frequently, this infusion of cash makes a meaningful difference to the policy owners at a critical time in their lives.
Here are several cases that illustrate why you should pay attention to this option for your clients.
Male, 91, with a $982,136 guaranteed universal life (UL) policy from a top carrier and a life expectancy of 65 months.
On Aug. 29, 2019, the initial offer was $325,000. It was bid up several times (three funds were interested). On Oct. 25, 2019, the final offer received was $414,000.
On Oct. 29, 2019, the client declined the offer and decided to keep the policy, as he wanted a higher amount ($10,000 more!).
On Jan. 6, we got a call from the broker that the client had changed his mind and wanted to accept the offer. We went back to the fund with the highest offer and, unfortunately, we were told that the offer was no longer available. We then went back to all the funds and, this time, the best offer that we could get was $350,000. On Jan. 23, the client again declined the offer and decided to keep the policy.
What makes this case interesting is to note that timing is everything: Funds available for investment don’t remain idle; they move on to other policies.
Male, 67, with a $2 million term policy from a top carrier and a life expectancy of 196 months.
The policy owner received $31,147. What makes this case interesting is that, although $31,147 is only 1.5% of the face amount, the client was thrilled to get the cash as opposed to lapsing the policy and getting zero.
Male, 77, in great health with a $1 million guaranteed UL policy from a top carrier.
The seller received $106,783. What makes this case interesting is that we were able to get an offer based just on the guaranteed premiums to age 105. Because he was in such good health, medical records weren’t needed. Guaranteed UL and guaranteed survivorship UL contracts on healthy people in their mid 70s and up can have surprising value in the life settlement market.
Female, 91, with a $2 million UL policy from a top carrier and a life expectancy of 38 months.
The insured had already tried to sell this policy about a year and a half prior. At that time, her life expectancy was 77 months. The highest offer was $250,000.
The family decided to keep the coverage and try to continue paying the premiums. But a year and a half later, the family determined that, although their mother’s health had deteriorated, they could no longer afford the premium payments. They needed money for their mother’s care, back bills, etc. This time the highest offer was $795,000. What makes this case interesting is that, in the interim, the insured’s health had gotten much worse. Although it seemed to make even more sense to hold on to the coverage, it was simply unaffordable. The money from the policy sale was a huge source of relief for the family.
It’s important to stay knowledgeable about your clients’ situations and make sure that they are aware of the life settlement option.
You don’t want to be on the receiving end of the all too frequent phone call, “My policy lapsed — is it too late to look into a life settlement?” As opportunities come up, be sure to explore the potential of a settlement.
As we always say, “It can’t hurt to try — it can only hurt not to!”
Robin S. Weinberger, CLU, ChFC, CLTC, is the director of national accounts for Life Insurance Settlements Inc. She has been a general agent and director of national accounts for Connecticut Mutual and vice president of marketing for Sun Life of Canada. She can be reached at email@example.com or (617) 451-3343.
Peter N. Katz, JD, CLU, ChFC, RICP, is a life settlement broker and co-director of national accounts with Life Insurance Settlements Inc. He is also a consultant specializing in life insurance advanced sales illustrations, and he has served as an advanced markets attorney and in product development. He can be reached at firstname.lastname@example.org or (860) 937-2936.