When clients are about to lapse or surrender a policy, we regularly encourage producers to tell them to give a life settlement a shot.
Since we bear the expenses of bringing the policy to the life settlement market, it can't hurt them or their clients to try, as long as the opportunity is maximized.
A typical case where it "hurts not to try" is an underfunded universal life insurance policy that is about to lapse.
A Sad Universal Life Story
The policy owners are shocked by the increase in the required premium to keep their policy in force, and too many let it lapse without investigating a life settlement.
This omission can happen in one of two ways: the producer did not bring up the possibility of a life settlement as an alternative to lapse or surrender, or, without producer oversight, the uninformed client acted precipitously and unilaterally.
Unfortunately, this error cannot be corrected by reinstatement as that starts a new contestability period, making the policy ineligible for a settlement.
Convertible Term
Another situation where the pain of not trying occurs is when a convertible term policy is allowed to sail past its conversion period without submitting the policy for consideration as a life settlement.
When term policies go past their premium guarantee period, they usually become unaffordable, both to the policy owner and any potential life settlement buyers.
A conversion to universal life can keep the policy affordable and attractive to life settlement investors. The end of the conversion period can be a painful date to miss if a life settlement isn't tried.
Delays
It can also hurt to be too late.
A life settlement is often a lengthy process that requires obtaining medical records, which can be extensive for elderly and health-impaired insureds.
Adding in the life expectancy underwriting process, unresponsive insurers, and the bidding process to maximize the value of the policy, it can take several months to finalize a life settlement.
A policy that is brought to market too late can require additional premium to stay in force until the life settlement process can be completed.
So, stay alert to life settlement situations (where a policy is likely to be lapsed or surrendered), or you risk being too late.
It is not important just to try, but, to maximize the benefit of a life settlement for your clients, it's important to try with the right life settlement broker.
An experienced life settlement broker with knowledge of life insurance has the know-how and investor contacts to get your client the most for their policy and can advise whether or not a life settlement is in your client's best interest.
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.
Peter N. Katz, JD, CLU, ChFC, RICP, is a life settlement broker and co-director of national accounts with Life Insurance Settlements. 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.
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