By Stephen Jass
If you owned an exotic antique car, with buyers lined up around the corner to make offers, it would not make sense to send that car to the scrapyard.
This metaphor paints the picture of how remaining term life insurance has often been handled, and it is an example of how the life insurance industry has seen a decline in partial term conversions.
The correct steps are taken by the fiduciary in determining the amount of term insurance the client should convert but, instead of appraising the remaining term insurance, it is scrapped.
An emerging trend is the appraisal of remaining term insurance as potential life settlement opportunities. This often provides policy owners with unrealized lump sum cash value for traditionally lapsed remaining term coverage. It also provides financial professionals with the benefit of converting the full face amount of the policy.
While not all policies will qualify, standard eligibility includes policies over $100,000 of face amount with an insured over age 65 who has experienced a decline in health since the life insurance policy originally was issued.
This trend is being fueled by the recent availability of life settlement submission, tracking and management technology. Financial professionals are able to spend less time and have greater insight, making the life settlement process easier and faster.
Max Offers Take Time
However, although speed is important, maximum offers take time. Similar to table-rated simplified issue life insurance, there are life settlement buyers who will make quick offers. These offers hardly ever reflect true market value and policy owners should be encouraged to commit the time required to achieve maximized offers whenever possible.
Although life settlement is not typically a major part of a financial professional’s business, it can often lead to overall business growth once embraced. When a client who would have traditionally lapsed their remaining term life insurance receives a lump sum of cash instead, the door opens to explore deployment of those new funds into other beneficial products such as annuities and long-term care insurance.
Furthermore, embracing life settlement does not always require it becoming a major part of a business if the right life settlement partners are utilized. With the current tools and resources available to financial professionals, there is more opportunity to discuss life settlement with clients.
Some may believe the life settlement opportunity is not large enough to pursue. According to Conning and the Wharton School of Business, an estimated $180 billion of life insurance that could qualify for life settlement lapses each year.
Based off the annual amount of life settlement transactions, between $10 billion and $15 billion, this reflects that somewhere between 5% and 8% of the potential life settlement opportunity is being realized.
Although the primary industry bottleneck is a shortage of available supply, this makes life settlement a significant opportunity for financial professionals who deal with clients’ life insurance on a daily basis.
Opportunities Are There
Exacerbating the misconception of life settlement not being worth pursuing is the lack of life settlement activity independent distribution organizations see from their agents and advisors. Although organizations may not be receiving life settlement submissions, some of their downline is almost certainly working with outside parties.
Concurrently, many of the agents who could have life settlement opportunities are unaware of life settlement due to a lack of education from their upline. Combined, these factors lead to an unrealistic perception how significant the life settlement opportunity is.
Independent distribution organizations who may not see life settlement as an opportunity also should consider the term conversion cases their agents are submitting through outside parties. While agents may still receive conversion commission, outside life settlement parties will typically control submitted term conversions and process through their own contracts.
Providing education and access to technology and resources that make the life settlement process easy becomes important when missed term conversion opportunities are considered. Identifying a life settlement partner that understands, supports and encourages the independent distribution model with turn-key solutions is paramount.
Stephen Jass is co-founder and CEO of LS Hub. He may be contacted at [email protected].
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