• $500,000 convertible term policy, issued select preferred, on a male 75. His current life expectancy averaged 8 years. As the result of a life settlement, the policy owner was paid $150,000 and the agent made $40,000 in total compensation (some from the term conversion and some from the life settlement). What makes this such a good example is that the conscientious agent was aware of the final conversion date and informed his client, six months ahead of time, that a decision about the future of the policy had to be made. As soon as his client decided the coverage was no longer wanted, he knew that a settlement could be a better alternative to just letting the policy lapse for no value.
• $1,000,000 Guaranteed Second to Die Universal Life policy, both insureds were issued preferred, non-tobacco and both (male 85, female 86) were still in excellent health. Thinking that they were too healthy for a life settlement; they were going to surrender the policy for $29,839. The broker, however, remembered that there could be settlement value even on healthy insureds, when the premium was guaranteed. The policy owner wound up with $210,000 (7 times thecash surrender value) and the broker made $43,500 in commission.
• $1,000,000 Guaranteed Universal Life policy, issued standard non-tobacco. The insured was a male 88, currently in good health. The cash surrender value was zero and the policy was about to lapse. The agent didn’t think that there could be value because the client was healthy, but he figured it couldn’t hurt to try. Because the premium was guaranteed, it turned out that the policy was attractive to buyers. As a result, the policy owner received $340,000 and the broker made $42,000 in commission.

And then, sadly, there are the lost opportunities. An insured, currently age 71, with a $5,000,000 term policy, missed the conversion period by just about six months. Had it still been convertible, there would have been significant interest in the policy and a substantial payout for the policy owner and the broker. Unfortunately, because the premiums became exorbitant after the conversion period, no buyer was interested in the term policy.

It’s imperative for brokers to keep track of when policies are within 6 months of the end of the conversion period. At that point, a decision should be made. The most common choices are:

• convert the policy
• replace the policy
• convert some and sell some
• sell it all, or
• keep it.

By doing nothing, however, chances are it will just lapse, potentially losing out on significant dollars for your client, as well as significant commissions for the broker.

Life settlements are one more opportunity to do something good for your clients. It’s up to you to help them see the opportunities and not to let them get overlooked.

As these examples illustrate, and as we always say, it can’t hurt to try – it can only hurt not to. As situations come up, do not hesitate to give us a call.