What You Need to Know
- Many term life policies can be converted to universal life.
- The conversion privilege term may expire before the level-premium term.
- Agents should consider helping clients keep track of the conversion privilege term.
One of the most common life settlement situations occurs when a term life insurance policy is about to leave its level premium paying period. Faced with drastically increased premium requirements, policy owners often let these contracts lapse. Then, after it’s too late, they become aware that a life settlement might have yielded them unexpected cash.
Term life settlement opportunities are frequently missed for three reasons:
- The client is unaware of life settlements or that a term policy can be a life settlement prospect.
- The agent is unaware that a term insurance policy can be a prospect for a life settlement.
- The agent has not paid attention to the end of the conversion privilege on their client’s policy.
Lack of awareness is the critical factor that leads to lost life settlement opportunities. Term insurance almost always must be sold prior to the expiration of the conversion privilege. Just like the original policy owner, who doesn’t find the increasing term premiums attractive or affordable, buyers don’t find them desirable as an investment either. They almost always want the policy to be able to be converted to universal life.
It is becoming increasingly common for the conversion privilege to expire sooner than the end of the level premium guarantee. By the time the client or agent is jarred to attention by the increased premium required to continue the term policy, it is already too late for a life settlement.
While savvy agents are already keeping track of term conversion privileges as an opportunity to convert term policies, it is also critical information to have to avoid missing out on a life settlement. And, even if the agent may have written off the client as a conversion prospect, a term life settlement can lead to the same result, a conversion, to the benefit of both the agent and client. So, even clients that are not conversion prospects must continue to be monitored to avoid losing a life settlement opportunity.