Close Close
ThinkAdvisor

Life Health > Life Insurance > Life Settlements

Term Conversion Life Settlements

By Scott Thomas and Jeff Hallman

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The first thing to look at is whether the policy comes with a conversion option.
  • Another factor to consider is any time constraints.
  • The age and health of the insured also matter.

Many financial professionals and their senior clients over the age of 65 may not be aware that term life insurance policies (if convertible) may be sold in the secondary market for a substantial cash payment.

A life settlement for a term policy that has a conversion option to a universal life policy prior to expiration can be a smart exit strategy for qualifying seniors who no longer need the coverage but who want to optimize the policy’s monetization potential.

If you are a financial professional whose senior clients own term life policies nearing expiration, you owe it to your clients and to other advisors in your referral network to inform them of the life settlement option. Otherwise, many seniors will simply allow their term policies to lapse — not realizing such policies may provide a cash windfall.

Before your client’s term conversion privilege expires, it’s in their best interests to determine whether he/she qualifies for a life settlement.

5 Cases

To illustrate how agents are helping their clients benefit from selling their unwanted term policies, we’re providing a summary of five case examples recently brokered by our firm. 1. Retired Business Owner

Having been diagnosed with several health issues, this 77-year-old retired business owner wanted to optimize his cash assets in order to travel and enjoy quality of life with his family. His insurance agent conducted a thorough review of his business-owned life insurance coverage and spotted an opportunity to generate a cash windfall for his client that involved a term life insurance policy. After converting and selling the policy, the client and his family were thrilled to receive $600,000 for an obsolete policy that had no monetary value.

2. 65-Year-Old Insured With a Serious Illness

The 65-year-old insured needed cash for expenses after being diagnosed with a disease that shortened his life expectancy. His agent spotted an opportunity to generate cash from an unwanted term policy. The 60-day conversion deadline for the term policy was approaching but the insured could not afford the $110,000 premium for the new universal life policy required for the conversion. We were successful in quickly negotiating a term-conversion life settlement for $880,000.

3. A Couple Affected by Alzheimer’s

This senior couple faced several financial challenges. The wife was recently diagnosed with advanced Alzheimer’s disease and they needed cash to help pay for her care. Secondly, they felt financially burdened by the annual premium for a $500,000 term policy that was nearing its expiration. Inasmuch as the death benefit far exceeded their current need for income protection, the couple had planned to let most of the coverage expire/lapse until their insurance advisor presented an alternative solution involving a life settlement.

4. An Insured With a Policy Near Expiration

This 74-year-old insured’s term policy was nearing its expiration. The client sought the guidance of his registered rep who explored all the options. Although the rep determined that a life settlement was clearly in the best interest of the client, the rep’s broker-dealer declined to facilitate the transaction. The rep referred the case directly to our firm,  and we negotiated a cash settlement of $172,000 on behalf of his client. The client was thrilled to receive a cash windfall to supplement his retirement income.

5. A Key Man Term Policy

This case involved a $1.5 million term policy that had been purchased 19 years prior on a 60-year-old owner/employee. The original purpose for the key man policy was to provide the business with the necessary cash flow in order to buy back company stock in the event of the employee’s death. When the insured reached the age of 75 and the term policy was nearing expiration, the company’s insurance agent facilitated the conversion of the key man term policy to a universal life policy. Four years later when the insured turned 79 and was fully retired, the company sold the UL policy and received a cash windfall of $161,250.

A Policy Owner’s Best Interest

Living until age 100 is the new reality for many of your clients. For seniors who have a fear of outliving their retirement savings, the proceeds from a term conversion life settlement can provide a source of unexpected cash and peace of mind.

We encourage financial professionals and insurance agents to help expand awareness of the life settlement option by sharing these case examples with your clients and your referral network. Many of the agents that we work with often circulate life settlement case examples among their centers of influence as a client generation tool.

In today’s fiduciary-conscious financial sector where the phrase “in the consumer’s best interests” is more frequently found in existing or proposed state and federal regulations, clients expect more transparency from their advisors and insurance agents. In the cases illustrated above where the policies were on the verge of lapsing, the outcomes were clearly in the best interests of the policy owners.

Optimizing the market value of unwanted policies in the secondary market requires an experienced life settlement broker who has a fiduciary duty to the policy seller to negotiate the highest possible offer. If you have questions about the life settlement transactions discussed in this article or if you want to consult on a potential case, feel free to contact us.

Hallman, from Frith
 
Scott Thomas, from Frith
Jeff Hallman is a co-founder and managing partner at Asset Life Settlement LLC. He has been involved in case submission, underwriting, compliance, the institutional bidding process, life expectancy analyses and contract negotiation in the life settlement market. He can be reached at 888-335-4769 x1108.

Scott Thomas is a co-founder and managing partner at Asset Life Settlements LLC. He can be reached at 888-335-4769 x1115.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.