Are you over 65 with a life insurance policy you no longer need or want? Like any other asset, it can be sold for cash in the secondary market.
Life insurance policies have value in the secondary market. Institutional investors will buy policies from people who have determined they do not need or want the policy. The market is best for people over 70 who are not in perfect health. If you fit this profile, you have an opportunity to sell your unwanted policy for a lump-sum, before lapsing or surrendering it.
Even term policies have value. We help policyholders determine the secondary market value of their inforce policies. The value of a life insurance policy is expressed as a percentage of the face amount. For example, if you sell a $1,000,000 policy for 5 percent, you would get paid a lump-sum of $50,000. A $3,000,000 policy could fetch $150,000, or more, depending on the percentage. The important considerations are health and the type of policy. There may be some income taxes to consider on these sales (each sale is different) and that is easy information to obtain. After the policy is sold to the new owner, future premium payments are theirs.
Term policies also have secondary market value but most policyholders are unaware of what this means.
Life insurance is an important asset to your beneficiaries and I urge potential sellers to consider keeping the coverage whenever possible. There are many creative ways to retain an inforce life insurance policy and you may want to consider them before selling the policy or letting it lapse. There are hybrid arrangements in which you give up a piece of the face value in exchange for having the future premiums paid.
Life Settlements convert your policy to cash through a sale to an interested buyer. This is no different than selling any asset when it is no longer needed or wanted. The policy is appraised along with your medical records and an offer is then made to the owner, if they determine there is value. Sometimes, no offer is made, depending on the outcome of these appraisals. Some people are too young and healthy or they have a policy that is not attractive to buyers. Other times, the market favors sellers, not buyers.
Getting an appraisal by working with a broker creates great value to sellers. You may have heard ads from some buyers who are attempting to go direct to sellers and that is certainly one approach but it is not optimal? Why deal only with one buyer when there are dozens, if not more?
As a life insurance professional with secondary market experience, I represent sellers by bringing the policy to all of the market. By putting buyers in a competitive situation, your offers will increase. The U.S. market is robust and you want an agent with access to the maximum number of capital sources buying policies.
Should you sell your policy? It pays in many ways to work with a professional working solely in your best interest. A life insurance professional is qualified to help you think through the pros and cons of selling a policy. Before making a decision, I advise my clients to speak with their spouse, other advisors and often, their heirs. This information about a life settlement transaction may help.
Interested but unsure? The best way forward is to determine if your policy has value. There is no downside and no obligation to obtain this value or to get bids. You will learn a great deal about the policy you own.
To determine its value, potential buyers need the following information:
- Policy projections including the premiums to keep the policy in-force to various ages.
- The type of policy and its terms. Some policies have no value in the secondary market because of their terms.
- The life expectancy of the policy owner which is determined by an independent, 3rd party analyst. No medical is necessary.
- A detailed history and understanding of the policy owner’s current and past health.
Typically, there is minimal value for policies owned by healthy people under the age of 70. If there are health considerations leading to a shorter life expectancy, that may change the numbers in your favor. I recently helped a 73 year old man sell a $3,000,000 policy. Because of previous medical history, he received several offers. He sold the policy for 16% of face value, or a little bit more than $450,000.
Are term policies eligible for sale in a life settlement?
Yes. You should be age 65 or older with some decline in health since the policy was issued. Term policies are typically bought for a temporary insurance need, unlike permanent policies where the policy owner typically has a long duration or lifetime insurance need.
Are there special requirements for selling a term insurance policy?
Most life settlement buyers want term policies that are convertible to some form of permanent insurance. Therefore, being able to control future premium obligations through a conversion is usually ideal.
When does the conversion privilege on a term policy expire?
The answer varies among different policies even issued by the same company. Some limit the conversion period to a number of years; other companies may also impose a maximum age.
When should I begin the process if a conversion is involved?
A life settlement transaction requires getting medical records, in-force illustrations, 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 3 to 4 months, you should get it started at least 4 to 6 months prior to the expiration of the conversion privilege.
Can I 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. It is worth exploring if they will allow partial conversions. Then, it would be 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 as term insurance or be converted separately.
