The new look is going to come from two directions, 1. The industry has become more refined over the past 10 years and 2. I’ve finally seen, as a life insurance agent, the kind of changes that have me ready to consider life settlements as viable options for some of my clients. Of course this is swallowing a big pill for me since it was about 7 years ago that I had a debate on BBC radio with a strong advocate of life insurance settlements and did my best to rip the throat out of my opponent and the entire life settlement/viatical business. Yes, even I had a Trump moment before they became the news of the day.
My stance then, in retrospect, wasn’t entirely unfounded. I have heard of that era in life insurance settlements history as the wild, wild west days. Because the market was highly unregulated and ferociously competitive life insurance settlement companies often used erroneously short life expectancy to price their settlements. This led to a lot of policies being sold when, with due diligence by the agent, a very strong case could have been made for finding a way to keep the insurance in force. The thinking has now taken a more moderate tone with life settlement regulations being in place in most states.
The industry today is more cautious, knowing that life insurance policy owners could be parting with property that could have tremendous value to their beneficiaries. The glitter of a quick buck in a life insurance settlement needs to be weighed against the long term value of the policy. There are many alternatives to life insurance settlement, including gifting the policy to a loved one or borrowing to pay the premiums. Only once it is determined that continuing the policy in force is not feasible, and the policy is headed toward a lapse or surrender, should a life settlement be considered. A life insurance settlement should only be considered as a last resort to lapse or surrender in order to maximize the policy’s salvage value.
It used to be urban legend, and may still be, that just about any life insurance policy was worth 20% of its’ face value or death benefit in the life settlement market. The 20% expectations were really never valid for an average life insurance settlement because policies are individually underwritten by the life settlement market based on the insured’s unique health condition and the pricing of a particular policy. Additionally, even the actual expectations about policies that are sold is probably no longer valid now due to the lengthening of life expectancies that have come with advances in disease treatment.
Bottom line. I won’t be shifting my focus away from impaired risk life insurance, but I talk to my clients at least annually and when I hear them talk about having out lived the need for a life insurance policy, or not being able to afford it anymore, well, I may not be out of ways to help them. If you have questions or are wondering if you should let your life insurance lapse, whether for lack of need, or in defense of your budget, call or email me directly. My name is Ed Hinerman. I’m no expert in life insurance settlements but I’ve found a broker that is and he happens to share my passion for doing to the right thing for clients. Let’s talk.