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Life Health > Life Insurance > Life Settlements

Don’t Let a Life Settlement Opportunity Lapse

By Robin S. Weinberger and Peter N. Katz

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What You Need to Know

  • You know clients can sell their policies.
  • You know ads from policy buyers are everywhere.
  • Clients may never have noticed those ads.

Be it by lapse or by surrender, the only real source of policies for life settlements are those about to terminate.

Rather than this being a limiting factor, instead, it means there is an abundance of life settlement prospects and opportunities to benefit your clients — and you, too!

In 2021, for example, more than 9 million individual policies were lapsed or surrendered.

Yet in that same year, only about 3,000 life settlement transactions occurred.

This incredibly low number, compared to total lapses, likely means a substantial amount of life settlement money was left on the table, because policies are frequently terminated without being evaluated for a life settlement.

All too often, we learn of a lapse or surrender after the event has already occurred, and once that happens, due to contestability concerns even if reinstated, the policy is no longer a viable candidate for a life settlement.

The common outcry: “if only we knew!”

How does one avoid missing a lapse or surrendered policy that could be a life settlement? For starters, producers must carefully monitor their book of business and take swift action if a lapse notice goes out to a client.

In addition, special attention should be given to policies that are barely treading water, with just enough cash value to avoid lapsing now, but are in danger of doing so in the near future.

Producers should also be on the lookout for lapse triggers — events or circumstances that make a lapse or surrender likely.

These events are a strong indication of a change in life insurance needs or the ability to pay premiums.

They include:

  • A change in personal circumstances, such as retirement or divorce.
  • A change in business or financial circumstances, like the sale of a business or financial setback.
  • A change by the insurer that impacts the carrying cost of the policy.
  • A change in the way the insurer services the policy by declining to produce in force ledgers.

Make sure that centers of influence, such as attorneys, accountants, trust officers and investment advisors, are also aware of these triggers.

Actually, they may know of them well before the producer.

Additionally, term policies are likely to lapse when their initial premium guarantee period expires.

To be a life settlement candidate, the term policy must, almost always, be convertible.

Please keep in mind that the conversion period may well be shorter than the premium guarantee period, so, when the premium guarantee expires, it may already be too late for a life settlement.

Most importantly, make sure your senior clients have at least an awareness of life settlements, so that you improve the chances they might contact you before it is too late.

Less than 10% of life insurance policies are held until the death of the insured.

This, in turn, means that more than 90% of all policies are lapsed or surrendered.

What an opportunity!

Robin Weinberger and Peter KatzRobin 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.

(Image: Diego M. Radzinschi/ALM)

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