Did you know you can sell all or part of a life insurance policy, even term insurance?
(2 minute read)
A term life insurance policy is usually purchased to cover a temporary need for life insurance, such as replacement income for a spouse should they pass away prematurely or other life circumstance. When the need ends, policy holders usually allow the policy to lapse so they don’t have to continue paying the premium. Many people will tell you there is no way to get value from a term life insurance policy, but the truth is, these policies are of high value in the life settlement marketplace. The solution of a life settlement might be right for you or your clients.
What is a Term Conversion Life Settlement?
A term conversion life settlement is a way for policy holders to recoup some value from their term life insurance, rather than just letting the policy lapse. When the term life insurance policy is purchased, the buyer will convert the policy to a permanent life insurance policy.
How Can a Term Life Settlement Help Me?
Here are a few case studies representing ways we have helped our clients with term life settlements:
- A retired 74-year-old cancer survivor had a $1.5 million term policy. Since he wanted to keep some coverage in force, he was only planning to convert a small portion of this policy, $100,000, and let the balance of coverage lapse. We were able to get him $45,000 in a life settlement by converting and selling $1,200,000 of the policy. He kept a $300,000 balance of the policy as insurance. In fact, the proceeds of the life settlement covered over two years of the premium and allowed him to keep a larger amount of life insurance coverage than if he had simply allowed the policy to lapse.
- A 53-year-old female was diagnosed with a cancer that was likely to take her life within 3.5 years. She wanted to enjoy her remaining years but needed additional cash to do things with her family. Fortunately, she owned a $1 million term insurance policy. She kept $100,000 of the policy for her family, and sold $900,000 of the policy, which enabled her to obtain $590,000, enough cash to pay off debt and check boxes on the bucket list.
- A 69-year-old male with a life expectancy of 15 years was retiring. There were two $2 million term policies on his life that were both being paid for by his employer. One was a key person policy and the other a fringe benefit. Upon retirement, the policies were no longer needed or affordable. He wanted to retain only $200,000 in coverage. Instead of letting the $3.8 million simply lapse, we were able to sell that portion of the coverage for $35,000.
These are just some of the circumstances where a life settlement may help you make the most of your term life policy.
When Should I Get a Term Life Settlement?
Many term policies have both issue dates and renewal dates in the fall. Whether you want to convert your coverage to universal or whole life and keep the insurance, or consider a life settlement, it’s important to start the process a few months in advance of that renewal date. The same deadline usually applies to the option to convert the coverage. If you have decided to lapse the policy instead of converting it, we strongly encourage you to at least explore the option of a life settlement. This will allow you to recoup at least some of the investment you have made into the term life insurance policy. The best prospects for a life settlement are usually individuals over age 70, but it never hurts to ask about the options for any individual. If I can answer any questions about the term life conversion settlement process, don’t hesitate to reach out.
Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.
Life Settlement Advisors