When I speak to insurance professionals, many think that a client needs to be seriously ill, or well into their 80’s or 90’s for a life settlement transaction to take place. As one recent broker said, “Lisa, buyers are only looking for clients who have one foot in the grave, and one foot on a banana peel, right?” Nothing could be further from the truth! The life settlement market has become much more flexible in terms of the types of clients whose policies are being sold.
Traditional thinking is that clients need to be older and sicker to sell their life insurance policy. While it is true that the shorter a client’s life expectancy is, the more value that policy will bring in the life settlement market. Generally, the investor groups who buy policies are looking for clients with 10 to 15 years of life expectancy, or less.
The older a client is, the healthier they can be to fit into the life expectancy window. You may have seen some advertising that states clients need to be age 70 or older with a $100,000 face value policy or higher to qualify for a life insurance settlement. In reality, there is no minimum age that a client needs to be to qualify. However, the younger a client is, typically, the more health impairments they need to have to fit into the life expectancy window. These guidelines reflect the traditional life settlement market, and to be transparent, this is where the majority of policy sales take place.
However, it may surprise you to know that we routinely sell life insurance policies for clients who are in their 60’s, and sometimes their 50’s. And yes, some of these clients have significant health issues, to fit into the life expectancy window described above. But, many don’t, and are fairly healthy. This means that many more of your clients can qualify for life insurance settlements than you may have previously thought.
Here are two examples of younger, healthy clients that sold their policies:
1) 57 year old man with a $3,000,000 UL policy. There is no cash. He no longer wants the policy and is going to drop it. He rarely goes to the doctor, and the most recent medical records showed him to be healthy. However, he was applying for new coverage and the paramed exam for the new policy showed elevated A1C. That is it. Everything else was perfect. The policy sold for $30,000.
2) 61 year old man with a $10,000,000 term policy. This gentleman sold his company and didn’t need the key-person policy any longer. He was going to drop it and walk away with nothing. The policy was still convertible. He had minor health issues, and a long life expectancy. The policy sold for $75,000. In addition, the referring advisor retained conversion commission on the converted policy. Yes, in both of these cases the policies did not sell for much, relative to the face value, but at least they sold. The clients are happy. They both were going to walk away from the policies with nothing.
As you can see, both of these clients are young for the life settlements market, and more importantly, relatively healthy. The referring insurance agents are also happy. They received commission on the sale, as well as an opportunity for additional product sales to their clients.
So, keep your eyes open for younger clients, especially if they have convertible term policies and higher face amounts — those over $1,000,000. Most financial and insurance professionals would not think these types of policies could sell, but as stated before, the life settlements market has become more flexible, thanks to more investor money flowing in.
The moral of this story is whenever you have a client that no longer wants, needs or can afford their life insurance policy, and they are going to lapse or surrender it, consider a life settlement. True, this is not a solution for clients who are 30 years old and running marathons. But, a life insurance settlement can be a solution for more clients than you may think.