Solving the Mystery of Term Life Settlements

Since a death claim is probably imminent, selling the policy to an investor is likely to be a poor financial decision unless the insured has an immediate need for cash, such as for medical or long term care expenses, and has no other source of liquidity. Finally, before contemplating a life settlement on a terminally ill insured, it's imperative to determine if the policy has an accelerated death benefit rider and whether or not that would be a better alternative.

4. When does the conversion privilege on a term policy expire?

Unfortunately, the answer varies from company to company and even within different policies issued by the same company.

Some limit the conversion period to a number of years; other companies may also impose a maximum age. For example, a 20-year term policy issued at age 50 might only be convertible to age 65 by the terms of the policy. The variability of conversion periods is a significant factor in missed term life settlements.

You need to maintain records on your term clients that not only show when the level premium paying period is over but, separately and perhaps more importantly, when the conversion privilege will end.

5. How long before the conversion privilege ends should a life settlement be investigated?

A life settlement transaction requires getting medical records, in-force ledgers, life expectancy analyses, investor pricing and the closing. In addition, a term settlement usually includes issuance of the conversion policy.

Because the entire process usually takes three to four months, you should get it started at least four to six months prior to the expiration of the conversion privilege. If, however, you learn of a policy that will lose its conversion privilege before the life settlement process can be completed, it is generally inadvisable to recommend to the client that they convert the policy speculating that a life settlement offer will be out there. Many policies do not attract life settlement offers.

6. Can my client sell part of a term policy and keep part?

Insurance companies typically do not permit a permanent policy to be split for a life settlement, however, they do allow partial conversions of a term policy. So yes, it is possible to sell only a portion of a term policy by doing a partial conversion as part of a life settlement transaction. The remaining policy can be kept by your client as term insurance or be converted separately. This can be a huge opportunity with a term life settlement.

As you can see, doing a life settlement on a term policy is not all that mysterious. The real mystery is how many term policies lapse or expire without even investigating the possibility of a life settlement. If you systematically monitor the dates that the conversion periods expire on your clients' term policies, you might just solve that mystery!

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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. She can be reached at [email protected] or (617) 451-3343.

Peter N. Katz, JD, CLU, ChFC, RICP, is a life settlement broker and co-director of national accounts with Life Insurance Settlements Inc. 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. He can be reached at [email protected] or (860) 937-2936.