When does a life settlement make sense?
Here are some examples, based on recent transactions:
- A 69-year-old man, in good health, who no longer wants his $100,000 term policy. His kids are grown, and he has another life insurance policy in place for them. He wants to take the premium he is paying monthly and apply it toward his house payments in order to pay off his home faster. He knows dropping the policy will give him nothing, so anything he receives from the settlement is a bonus, in his mind.
- An 83-year-old client who has a $1 million universal life (UL) policy. She purchased a $2 million policy almost 20 years ago, with a large lump sum that was supposed to carry the policy through to maturity. The cost of insurance started to drain the cash, so the policy was restructured to a $1 million death benefit. Now that is also draining the cash fast. The beneficiaries do not want to pay the $45,000 annual premiums. A settlement lets the beneficiaries garner some value from the policy, far above the cash in the policy.
- A 58-year-old client has significant heart issues and a $1.6 million UL policy purchased 22 years ago. His focus is to sell and consolidate his assets in order to move to his dream home in another state. He knows he no longer needs this much coverage, and the beneficiaries want their father to be happy. A settlement allows him to redirect the value of his life insurance policy, once again far above the cash surrender value, into a dream home while he still has time.
- A 70-year-old client, in good health, is buying a different life insurance policy. He has a $3 million term policy that he is going to cancel when the new policy is issued. A settlement allows him to achieve some value for a policy that is worth nothing should he cancel it.
According to an Insurance Studies Institute study, 500,000 seniors a year lapse their life insurance policies. They walk away with little or nothing. When the institute conducted a survey of consumers who let policies lapse, 90% said they would have considered a life settlement, had they known the option existed. Some of these seniors who are letting policies lapse are probably your clients.
What's in It for You?
First and foremost, arranging for a life settlement is a great way to help a current client. It also can be a good way to attract new clients, as you are talking about something your competitors aren't. Finally, there is a revenue opportunity for you, through the settlement itself, the opportunity to help your client reinvest the proceeds, or both.
Please remember these key points when speaking with your clients:
- Clients can sell term life policies, not just UL and whole life policies.
- Life settlements aren't just for clients who have significant impairments. Life settlements can also help relatively health clients garner value from their policies.
- The key age group is generally 65 and older, but younger clients may also be able to sell their policies.
- A face value of $100,000 is generally the minimum.
- This market is highly transparent and regulated.
A "hidden asset" that a client is going to lapse or surrender, and collect little to nothing, turns into a good revenue source for the client and for you. If all of the alternatives have been considered, and the decision has been made to lapse or surrender a life insurance policy, a life insurance settlement can offer your client a significantly greater return.
(Image: Thinkstock) 
Lisa Rehburg
