Life Policy Buyout Fight Heats Up

The Life Insurance Settlement Association is continuing to object to what it contends are unfair life insurance companies’ life policy buyout efforts.

For veteran life insurance advisors, the battle means that any in-force policies they struggled to sell years ago turned out to be a great deal for the customers.

Bryan Nicholson, LISA’s executive director, talked about life insurers’ enhanced cash surrender value efforts Monday, at an online longevity conference organized by Fasano Associates — a life, health, annuity and life settlements underwriting firm.

Interest Rates vs. Life Insurers

Life settlement companies buy in-force life insurance policies from the original policyholders, either to hold the policies as investments or to sell the policies to investors in the “tertiary market.”

U.S. life insurers typically invest most of the premium revenue they collect in bonds and other fixed-income instruments. Low interest rates have depressed bond yields and increased the value of the returns life insurance policyholders get on their premium dollars.

For life settlement companies and tertiary market investors, interest rate economics make older universal life policies and other older permanent life policies especially attractive.

Buyout Offers

Traditionally, life insurers wanted to retain as many customers as possible. Policyholders could get only relatively low payments based on a policy’s cash surrender value if they dropped their policies.

Now, Nicholson said, some life insurers are courting policyholders by making “enhanced cash surrender value” offers for amounts ranging from twice the cash surrender value to 10 times the cash surrender value. The offers are typically available for a few months.