If you - or your client if you are a professional advisor - is considering what to do with an old life insurance policy, you may want to explore a “life settlement.” As you may know, a life settlement involves the sale of a policy for more than its cash surrender value in the “secondary market.” In certain situations, this alternative should be explored before a policy is simply surrendered. Whether a life settlement is possible and, if so, whether it is desirable are preliminary questions you should have answered.
A policy may no longer serve its original purpose, or it may have reached the point where it may lapse before the insured dies, even with continuing premium payments. In these situations, a life settlement may be a viable alternative for policies of a certain type and size on the lives of certain older insureds in somewhat impaired health, as explained below.
You may also want to know, or at least you should be advised, whether there is likely to be greater value in retaining the policy, or a portion of it, for the life of the insured, rather than attempting to sell the policy for only a portion of its death benefit or surrendering the policy altogether.
We can begin to help get you the answers to these questions with your responses to a questionnaire which we will analyze and to which we will respond. We provide this basic service for a very affordable price.
The value of a fee-only approach: You might wonder if you should even pay this amount. You might consider trying to access the life settlement market through an agent or possibly even directly? But there are a number of pitfalls if you do. In the first place, you will only obtain an opinion – and maybe not a reliable one - about the alternative of selling the policy. You would receive no advice regarding the potentially much greater value in retaining it. It’s also possible that you would not be dealing with the most reputable players in the life settlement market. You really would want to know and have confidence in the nature of the purchaser of a policy on your life. You would want it to be a highly respected institutional entity investing in large numbers of policies to remove any concern that a future policy owner would have an interest in your early demise.
If there is potential to sell your policy, it’s also likely that you would not gain access to all of the most competitive offers for it without independent knowledge of, and due diligence concerning, the brokers operating in this market. And, if you proceed to explore your options through a life insurance agent, you will likely pay a large percentage of the gross purchase price of the policy in commissions to the agent that often exceed those paid to the life settlement broker. Using our fee-only approach, you will retain much more of the value of the policy, if you do proceed to sell it, than if you proceed through an agent.
Life Insurance Advisors, Inc., Fee-Only Insurance Consultants, offers an objective and knowledgeable resource to determine the potential viability and desirability of the full range of possible alternatives - either retaining or selling the policy rather than surrendering it. We begin with a preliminary review of the possible options for a modest fee.
Types of policies and situations with a “life settlement” value: You should understand upfront the types of policies and circumstances most likely to result in a “life settlement” value – i.e., where the policy may be worth more than its cash surrender value in the secondary market. The vast majority of such policies have a death benefit of $250,000 (and usually $500,000) or more on insureds over age 65 and whose health has declined to some meaningful extent, or whose life expectancy has shortened by more than the advance of age, since the policy was issued. A life expectancy of 12 years or less is generally required. In addition, the policies in question are usually, though not always, universal life policies with relatively small amounts of cash value in them relative to the death benefit, and they are sometimes term insurance which can still be converted.
With this understanding on the part of clients and advisors, we are pleased to offer a preliminary review of the policy sale and retention alternatives. Please complete the questionnaire and provide the information that enables us to summarize the possible options which might be available to you.