Life Settlements Plus Orphaned Policyholders: A Win-Win

What You Need to Know

Some are orphaned because agents left the business.
Some are on their own because agents changed companies or changed focus.
Selling some of the neglected policies could bring in $100,000 or more in cash.

It is a sad fact of the life insurance industry that many policyholders rarely, if ever, hear from the person that sold them their policy.

The thousands of abandoned buyers, who no longer have a relationship with the person who sold them their policy, are known as “orphan” policyholders.

As a result of this neglect, the day will likely come that they are going to be unpleasantly surprised by news that their policies are not performing as illustrated years before.

Although, they’ve diligently paid their premiums for many years, no one has been monitoring the performance of these policies.

Suddenly, they are informed by the insurance company that their policy will lapse unless they start paying substantial additional premiums.

While many orphaned policy owners are the result of producers who have left the business, others are orphaned because agents change companies or focus on financial planning activities other than life insurance.

Orphaned policy holders can make great prospects for life settlements because they are frequently seniors who own troubled policies.

Life settlements are an alternative to lapsing or surrendering a policy where the policyholder gets more cash than they would get from the insurance company.

The settlement value is based on many things, but the two main factors are the life expectancy of the insured and the cost to keep the policy in force.

Here are two examples of orphan policyholders who benefitted significantly from a life settlement:

1. A Male, Age 86.

Bought a $650,000 policy in 2003

He had been paying $7,500 per quarter and then, totally unexpectedly, got “the letter” saying that it was no longer enough.

There was no cash left in the policy and it was going to lapse unless he started putting in substantially more premium (about $13,000 per quarter), which he could not afford to do.

Upset, he called his writing agent and found out he was deceased, but his son had taken over the business.

He introduced the client to the possibility of a life settlement and the policyholder was excited to see if he would qualify.

2. A Female, Age 76

Bought a $500,000 policy in 2009.

She no longer wished to keep the policy which had a premium of $4,700 per year and a cash surrender value of $19,800.

She called up the number of the servicing office on her premium notice saying she wished to cash in her policy.

Luckily, she got an astute agent who said before you cash it in, there might be a better alternative.

The client got $73,600 and the agent $15,840. Another win-win.

Have some of your clients been orphaned? Are you afraid to call them and explain that their coverage is no longer working as illustrated and may soon lapse?

You now have an alternative that could benefit them, as well as you, which gives you two good reasons to pick up the phone.

Always keep in mind, “It can’t hurt to try; it can only hurt not to.”

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. 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.

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