Who to Engage...
While certainly episodic, the opportunity to monetize an unwanted or surplus life insurance policy is more frequent - and of greater value - than most wealth advisors and even life insurance producers are aware.
Most basically, just knowing to respond to a client's inquiry about an interest in a life settlement and the variables of a policy likely to have value to investors will ensure that you can at least be responsive to the opportunities borne of a client knowing to ask - and to do so in the most transparent, effective, and lowest cost way. But, given 10% awareness among policy owners of life settlements, you'll likely miss the other 90%.
So, we'd be humbled to assist you with the 10%, but we'd love to work with you to ensure that the other 90% don't unwittingly lapse or surrender a policy that might garner significantly greater proceeds in a sale.
The basics
UL/VUL/Term
POLICY TYPES
Any permanent, cash value - or convertible into cash value - policy can work, depending on other factors (Whole Life policies rarely work)
<72
IF LESS THAN HEALTHY
This is a function of duration demand in the market, the longest of which is about 16 years (life expectancy)
>72
IF HEALTHY
for women, add two years and for joint policies on which both are alive, add another two years before a policy is likely to work
>$500,000
POLICY SIZE
Although we can help with smaller policies, there is little market demand, given the underwriting and admin costs relative to potential return
Certainly not an everyday opportunity, but substantive
HNW/UHNW HH's > 72 own almost $1.5T of permanent or convertible life insurance - including 75% of business owners and 66% of senior executives. However, because the relative utility of the insurance often declines as the insured and owner age, >80% is lapsed or surrendered before it pays a death benefit - 3% - 4%/year, about $75 billion by 40,000 HH's.
>50%
HNW/UHNW >72 who own $1.5T of permanent life insurance
4%
Lapsed and surrendered every year, at least $75 billion
20+
Institutional buyers
8x/23%
Avg. market multiple of CSV and % of face value
Knowing what they own and its utility is half the battle
Knowing what to look for - even just about the existence of policies, life events and milestones in your clients’ lives, or estate changes that may impact the utility of a policy - and applying basic processes to regularly engage those clients about them, you can ensure that clients 1) maintain only those policies that contribute to broader objectives and/or responsibly explore a change in coverage to a more relevant product or, 2) in those instances that maintaining those policies no longer makes sense, consider a sale with an understanding that it might actually have value for your client.
Policy Level Triggers
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Owner might prefer liquidity of sale to maintaining insurance
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Relative affordability/no longer affordable (individual and Trust)
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Unpalatable increase in Cost of Insurance (COI)
-
Poor performance (ILIT – remediation process)
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Premium financing has become too expensive
-
Term policy expiring, still convertible into saleable permanent policy
Life Events/Evolved Priorities
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Simply do not wish to pay premiums any longer
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Retired, with buy/sell agreement policy transferred
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Key-man policy transfer to owner unnecessary for estate
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Need or preference for the liquidity of a sale
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Outlived need/living longer than modeled when purchased
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Access to superior return assets with premium $
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Desire/preference to fund other with proceeds from a sale
Estate/Financial Plan Changes
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Change in estate/over-insured
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Change in beneficiaries
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Outlived utility of/need for policy (e.g., death of heir)
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Desire to distribute/use proceeds prior to death
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Utility of proceeds from sale of greater utility than proceeds upon death
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Higher return strategy to sell and re-deploy proceeds/avoid future premiums