By now you probably know that a client’s life insurance policy can be sold for cash, and that investor groups buy these policies for their portfolio return and diversification. And, you may know, that all different types of policies can be sold, including term policies. Generally, term policies need to be convertible (and not past the conversion deadline) in order to be sold. But, did you know that non-convertible term policies also have the potential to be sold? Yes, it’s true!
To be forthright, the vast majority of term policies do need to still be convertible to be sold, but that does not automatically exclude term policies that are no longer convertible. Every investor group has their own parameters, and not all will even look at a non-convertible term, but some will.
Here are two examples of clients who benefitted from the sale of their non-convertible term policies this year:
- Client is 78. He has cancer, but is not in a viatical situation (less than 2 years of life expectancy). The policy is a $250,000 non-convertible term that has 5 more years left until the end of the term. First of all, why would he want to sell his policy? In his situation, he purchased the policy years ago to take care of his wife, in case something happened to him. She passed away 4 years ago. His beneficiaries are his daughters. But, in his words, they do not need the money. They and their families are successful. He wanted to sell his policy to make his life more comfortable while he is still alive. From a buyer perspective, they looked at his life expectancy, the fact that the policy had 5 more years left, and the first few years of annual renewable term (ART) premiums were manageable. After many offers, the policy eventually sold for $100,000.
- Client is 66. He does have some health issues, but once again, he is not in a viatical situation. The policy is a $250,000 term. His financial advisor contacted us a few months before the term was going to end. The client was not going to continue the policy, he simply didn’t need the coverage any longer, and didn’t want to pay the higher ART, or conversion, rates. Interestingly, this policy was actually convertible until the end of the term, but upon reviewing the conversion premium and the annual renewable term rates, the investor group decided to keep the policy as a term and continue the ART premiums. The policy sold for $50,000.
Typically, the sale of a non-convertible term policy involves a client who has more serious health impairments than convertible term clients. Besides health, the investors will also look at the time left until the end of the term, and what the ART (annual renewable term) rates look like.
Both of these clients could not have been more thrilled. They had savvy financial advisors who guided them into investigating a life settlement before they lapsed their policies. Your client should always consult with you to see if there are better options available for them. But, don’t let a non-convertible term policy turn you away from investigating a life settlement. If the decision has been made to let their policy go, a life settlement – even on a non-convertible term policy – can be of great benefit to your client…and to you.