You may know that 500,000 seniors a year lapse their life insurance policies. They walk away with little or nothing. The reason? They no longer need or want the policy, or they can no longer afford it, and they do not know there is another option.
A life settlement can be a good solution for these types of clients.
(Related: Do Life Settlements Work in ILITs?)
But, not all of those 500,000 policies can be sold.
You may also know that all types of policies have the potential to be sold: universal life (UL), whole, term, second-to-die, group, etc.
Here are some examples of policies that are harder to sell than you may think. What seems like a good opportunity may be a challenge.
1. Policies That Have High Cash Values Compared To The Face Amount
Sometimes advisors think that a lot of cash is good for the buyers of life insurance policies. Maybe, maybe not. For instance, a client who has $180,000 of cash in a $200,000 policy. If the surrender charges are high, making the cash surrender value lower, that is helpful. If the cash surrender value is high, that could be difficult.
Why? Cash surrender values are a bar that a buyer’s offer needs to exceed. If the offer doesn’t, then why would a client sell? They could surrender the policy for more money. Therefore, if there is a very high cash surrender value as compared to the face value, the policy can be harder to sell, especially if the client is in good health or the premiums are high. Sometimes, policies with high cash surrender values do not receive offers at all, because the cash is so high.
2. Whole Life
These policies tend (though not always) to have much higher premiums than UL, relative to the face value of the policy. For instance, client has a $150,000 whole life policy with $13,000 in annual premiums. Looking at the math, unless the client has a relatively short life expectancy, this policy will be a challenge for a high cash sale.