I got a call from a guy who was having some serious financial problems and was on the verge of bankruptcy. He had a $1 million policy that he could no longer afford and was going to let it lapse. If he lapsed the policy, he would have gotten nothing back! I shopped his case to all of the Life Settlement providers that actually purchase the policies, and he ended up walking away with $436,000. He was extremely happy about this outcome.
What would you do if you got $436,000? I’d probably pay off all my debt, maybe get a new car, and then invest the rest. This would be awesome!
Since you may be retired and living on a fixed budget, what would an additional $436,000 do for you? You sure could take a lot of trips with that money, maybe move somewhere that’s warm in the winter, send your grandchildren to college…
If you want to sell your life insurance policy because you no longer need or want the coverage or you’re just going to lapse or cancel your policy anyway, don’t get rid of your policy until you find out if any life settlement provider may buy your policy from you.
It’s always possible that no life settlement provider will make you an offer as there are specific criteria to qualify, but you should at least inquire to see if selling your policy is an option, especially if you’re age 70 or older.
The life insurance company that your policy is with won’t help you to sell your policy, as they’d prefer that you just lapse it. Life insurance companies DO NOT like life settlements, and they have tried to get laws passed to stop life settlements.
About 90% of all life insurance policies lapse or are surrendered, which is great for life insurance companies because they never have to pay out a claim. This is all the more reason to find out if you can sell your policy so you can recoup what you’ve paid into policy or possibly get more than what you’ve paid, prior to letting it go.
Even if your policy has cash surrender value that you’ll get back if you cancel it, a life settlement provider may pay you more or even significantly more than the cash surrender value.
To qualify for a life settlement, you ideally need to have policy of $250,000 or higher, be age 70 or older (the older, the better) or you will have to have some significant health issues if under 70. By “significant health issues,” I mean things that will result in a much lower life expectancy. Things like stage 4 cancer, advanced liver cirrhosis, and diabetes with stage 5 kidney disease are considered “significant.”
Things that are usually not significant enough to have a big enough impact on life expectancy, especially for people under age 70, are successful cancer treatment, successful open heart surgery, diabetes with decent control and past strokes without serious residual affects. So issues like these may not help you to get an offer on the sale of your policy if you’re younger than 70.
Some life settlement providers will buy policies as low as $100,000, possibly less, but the majority will only consider policies of $250,000 and higher. The higher the amount of life insurance, the more companies there will be that will bid on your policy.
If you want to sell your term insurance policy, it is important for you to find out if your policy is still able to be converted to permanent life insurance since all term policies must still be convertible to be sold. If your term insurance policy is no longer convertible, you won’t be able to sell it.
Most term life insurance companies right now allow conversion up until your age 70. There are a few companies that will allow you to convert to age 75 and at least a couple that did allow conversion to age 80 at one point, but conversion to age 70 is the norm.
The dilemma in selling your term policy is that since many term insurance policies are not convertible after age 70 and since most life settlements are done for people age 70 and older, you will have to make sure that your term life policy is still convertible to permanent life insurance to even have a shot at selling it. This is also a prime example of the reason not to buy the absolute lowest term life insurance rate. The lowest term life insurance rates rarely have the best or longest conversion option.
Life settlements are also ideal if you have a guaranteed universal life policy with little or no cash value that you want to get rid of as these are ideal policies to sell.
Even if you have a non-guaranteed universal life policy, these are also ideal policies to sell. In many cases these non-guaranteed UL policies require you to pay more into the policy at some point in the future or the policy may lapse without value. If you have one of these policies and you’re not willing to pay more into the policy, a life settlement may be ideal for you. This way, you can get paid a nice lump sum of money and never have to pay a life insurance premium again.
While I’ve done some life settlement cases that have resulted in a payout of 45% of the policy value, the norm, according to a Conning Research and Consulting study, was a payout equal to 20% of the policy value. Having a realistic expectation as to what you’ll get for the sale of your policy is important, and if your beneficiary will need the full amount of life insurance upon your death, don’t sell your policy.
If you have a $250,000 policy and you get a 20% offer, that’s still $50,000 which is a nice amount of money, but it’s not close to the amount your beneficiary would get if you die.
While I’ve heard of offers as high as or higher than 50% of the policy value being made, these would only be for someone with a very short life expectancy like two to three years. I’d recommend that if you’ve been diagnosed with a terminal illness and have a short life expectancy to NOT sell your policy unless there is no way you can afford to keep it and lapsing or canceling policy is the ONLY option.
If you have been diagnosed with a terminal illness, first see if your life insurance policy has an accelerated benefit rider for terminal illness and find out the criteria to get accelerated benefits from your policy. Many life insurance companies automatically include this at no additional charge, so you can receive a portion of your life insurance benefit prior to death. Then the insurance company would pay the balance of any policy benefit to your beneficiary after death. This would almost always be a better option than trying to sell your policy via a life settlement since the accelerated benefit option would enable you to get money now and for your beneficiary to get money later.
What you’ll get for the sale of your policy really comes down to the amount of your life insurance policy, your life expectancy (LE) as determined by third part life expectancy companies like AVS and the premiums required to maintain coverage to age 100. I agree that premium required to age 100 seems excessive, but this is one of the criteria that all life settlement providers require currently. This will have an impact on what you’ll be paid.
The shorter your life expectancy and the less that a life settlement provider will have to pay for ongoing future life insurance premiums into your policy, the better the offers will be.
To get the best offer on the sale of your policy, you must deal with a life settlement agent or broker who will shop your case to all life settlement providers available in your state. If you use an agent/broker that only deals with one or a few life settlement providers or you deal with someone that does not understand that this is a highly negotiated industry, you are certainly not going to get the best offer.
For example, the original “best offer” I received on the $436,000 case above was $365,000, but after negotiating with the companies that made the initial best offers, the ultimate offer was raised by about 20% to $436k. This was a huge increase that even I was surprised about. If I had not continued to pursue even better offers, then my client would have gotten $71,000 less.
You should ask any life settlement agent or broker how long they’ve been doing life settlements, how many life settlement providers they’ll get you offers from, and what amount they’ll make on the sale as this can greatly diminish the amount of money you’ll walk away with.
Many life settlement agents or brokers will take 25%- 30% or more of the offer, which I personally think is too high. I’d never deal with anyone that takes that high of a commission.
Because many salesmen will tell you want they think you want to hear, put your BS detector on full blast when questioning any life settlement agent or broker to see if they may best for you. Also, make sure you’re comfortable with and you believe the life settlement agent or broker you’re dealing with is going to get you the best offer.
Make sure any agent or broker ultimately shows you the life settlement offer sheet from the purchaser so that you can see both the gross offer and the net offer to you.
I feel really bad for seniors who have gotten rid of unwanted insurance policies because they didn’t know about life settlements. To all accountants, financial planners, insurance agents, sons, daughters, and anyone else who knows of any senior that is considering getting rid of their life insurance policy, tell them they should consider a life settlement unless they don’t need the money.
Please don’t hesitate to call me at the toll free number above or email me at [email protected] if you have any questions about life settlements.