Podcast Center
Video Center
Webcasts
Resource Center
Events
December 30, 2022 at 12:57 AM
What You Need to Know
- The agent had a $2.8 million term life policy that was almost 20 years old.
- Converting the policy to a universal life policy and keeping the coverage would have cost $5,000 per month.
- A life settlement company paid the agent $30,000 for the policy.
As life settlement transactions gain more ground as a valuable financial strategy to protect the client’s best interests, many insurance professionals who are unfamiliar with the inner workings of the secondary market for life insurance feel obligated to boost their professional knowledge in order to competently represent their policy-seller clients.
This article details one of our recent life settlement cases involving a life-insurance-licensed CFP who decided to sell his own policy to gain the experience he needed to represent his clients’ best interests.
We will also highlight recent studies and data pointing to a favorable market ahead.
Insurance Licensed CFP Walks the Talk
This case involved a 65-year-old life licensed CFP affiliated with an independent broker-dealer.
The BD’s compliance policies required that agents engaged in life settlement transactions use only those life settlement brokers from the organization’s preapproved list of brokers.
As a result, our firm was asked by the agent-CFP to handle the case and negotiate the highest possible offer for the policy.
The insured’s $2.8 million term policy had been purchased earlier in his income-producing years and was nearing the end of its 20-year term.
In reviewing his options, the agent determined that allowing his policy to simply expire was not an attractive choice.
He considered converting the policy to a universal life policy, but the $5,000 monthly premium to maintain the policy was neither financially prudent nor affordable.
Having weighed all the options, the CFP decided that converting and then selling the UL policy in the secondary market was a sound course of action that would benefit him both personally and professionally.
- From a personal standpoint, selling the policy meant he could receive a cash payout and thereby recoup some of his premium investment over the years.
- From a professional perspective, the experience of selling his own life insurance policy would provide hands-on knowledge to help fulfill his duty of competency to clients.
When working with agents and their clients, the initial step at our firm begins with a free, no-obligation consultation involving a policy evaluation and life settlement prequalification.
Determining the insured’s eligibility and providing an estimate of the policy’s value in the secondary market is essential to the client’s decision-making process and helps set expectations.
Following the prequalification process in this case, we informed the CFP that his young age of 65 could present a challenge in terms of generating acceptable offers from institutional buyers.
Although it was a long shot, the agent was still determined to proceed because of the valuable experience he would gain that would help him fulfill his duty of competency to his clients.
After submitting the case to a handful of buyers known for purchasing policies from insureds with longer life expectancies, we were able to generate competitive offers for $15,000, $22,000, and $30,000.
The agent was gratified to accept the $30,000 payout, and he was especially pleased to earn a commission on the UL term conversion.
“The first-hand experience of converting and selling my own term policy enabled me to more effectively advise my senior clients about the process,” the CFP commented.
(We would like to note that this practitioner granted us permission to publicly share the details of this case in order to benefit his fellow fiduciary practitioners.)
Transaction Volume Points to Future Growth
For nearly 25 years, the life settlement marketplace has demonstrated its value as a smart financial solution for high net worth seniors with unwanted or expiring life insurance coverage.
Large insurance policies that were purchased years ago as a component of a comprehensive estate plan may no longer be relevant once children are grown or a business is sold.
Jeff Hallman and Scott Thomas are co-founders and managing partners at 