If you're relatively new to the life settlement industry, it can be challenging to tell when you should bring up the possibility of selling a client's life insurance policy as a life settlement.
If there's little chance the client's policy will qualify, you don't want to get their hopes up needlessly. The same is true if you're unsure of whether or not a policy might qualify.
So what do you look for in a policy when you're trying to decide if a life settlement would be a good option for your client? Here's our brief guide.
Is the client about to lapse or surrender his or her policy?
The only time that a life settlement is a good idea is when the policy owner has decided to lapse or surrender that policy. It could be for any number of reasons - perhaps the premiums have become unaffordable, or a spouse has passed away and the coverage is no longer needed or wanted.
If there's a reason to keep the coverage, then that is what your client should do. After all, they've paid a good deal of money into the policy and their survivors should reap the benefits if that's what the client still wants.
On the other hand, if the client is considering or has decided to either lapse or surrender the policy, you should begin looking at the policy's qualification prospects for a life settlement. If the policy does qualify, there's a good chance your client could miss out on lots of money if they simply drop it.
How old is your client?
Usually, the best prospects for life settlements are policies for which the insured is at least 70 years old. However, 65-year-old policy owners can also qualify.
If the insured is younger, there's a very slim chance that their policy would qualify - they would have to have extremely serious health issues.
Has your client had a change in health since the policy was issued?
The policy owner usually needs to have had a change in health since the policy was issued, and/or to have a median life expectancy of 15 years or less.
Since any purchaser of your client's policy will take over payment of the premiums on that policy, they'll likely be willing to pay more upfront if they don't think they'll be paying annual premiums for the next couple decades.
What kind of policy does your client hold?
In general, term life, term that is convertible to universal, and universal life are the most ideal policies for investors. Survivorship universal life policies with one deceased are also attractive options.
There are exceptions, of course - some whole life policies do qualify, although since they accumulate significant cash value, it can be difficult to attract payment offers that would exceed the cash surrender value.
What is the policy's face value?
Usually, investors are interested in policies with at least a $100,000 face value. Jumbo policies worth $5 to $50 million are also great candidates.
If your client is considering a life settlement in order to pay for long-term care, they may be eligible to convert their policies into long-term care settlements. In this transaction, a policyholder sells their policy just like they would with a life settlement, but the resulting cash is used to make regular payments to a nursing facility, assisted living facility, home health aide, or other long-term care organization.
If your client's policy meets these qualifications, you may want to look into the possibility of a life settlement. And if you'd like to be sure, you can take our quick, easy policy quiz. By answering seven questions, you can find out how likely it is that the policy would qualify.
To learn more, contact a licensed life settlement broker like Ashar.