(2 Minute Read)
I want to talk about an opportunity that’s often missed among advisors as they review senior clients’ finances: term life insurance policies sold in life settlements. Accounting for approximately 40% of new life insurance policies purchased each year, term life insurance is great for providing effective, low-cost coverage.
Term insurance is great when the buyer has a purpose for it. However, sometimes that purpose goes away over time and the policy holders are left with a term life insurance policy that they no longer need or want. Often, seniors who have non-convertible term life insurance find themselves in a sticky situation when they decide to get rid of the policy. Much like renting a home or apartment, equity isn’t built with a term life insurance policy. This means that when the policy is surrendered or lapsed, there’s nothing to get back. It’s a shame, especially because of the many premium payments put into it.
This is why term life insurance is best when it can be made convertible. When a new term life insurance policy is purchased, buyers usually have the option to make it convertible by adding a small amount to their premium payments.
It’s common for advisors to miss this opportunity when reviewing their senior client’s finances. This is why conducting a review of all of your clients’ life insurance policies and knowing all the options available for them is important.
When a senior no longer needs a convertible term life insurance policy, they have the option of converting it and either keeping or selling it in a life settlement, depending on what’s best for their needs. As an advisor, it’s important to discuss these options with your client to help them make the best decision for them.
For an example of selling a term life insurance policy, one client had a policy worth $1.5 million with the option to convert. He wanted to retain $750K of insurance; however, he didn’t need the remaining $750K. Therefore, he sold $750K of the policy in the secondary market. He was able to utilize the money he received from the sale of half of the policy to make premium payments on the portion he converted and retained.
If you have a client with a convertible term life insurance policy they no longer want or need, you can use our qualification calculator to see if they qualify for a life settlement.