There are 2.5 million reasons each year
By Lisa Rehburg
That’s right — 2.5 million seniors a year will walk away from their life insurance policies. 500,000 seniors a year will lapse their life insurance policies, leaving behind an estimated $100 billion of benefits. And, another 2 million will surrender their policies — each year! 90% of seniors who have let a policy lapse would have considered selling it, had they known life insurance settlements existed. These seniors are your clients, and potential clients.
A common question is, “Why would anyone want to sell their life insurance policy?” There is a misperception that clients only sell their policies because they have to. This is not the case in the vast majority of the time. Typically, clients no longer want, no longer need, or can no longer afford their policies.
Briefly, policies are sold through a life insurance settlement. As a quick recap, this is the sale of a life insurance policy to a third party (usually an investor group) for cash, more than any cash value or surrender value in the policy. The investor group becomes the new owner, continues to pay the premiums, and receives the benefit when the insured passes away. The benefit to the client is they receive a lump sum of cash 3 to 5 times greater, on average, than the surrender value of the policy.
Each client is unique, and the reasons vary, but here are the most common reasons we see that a client wants to sell their policy:
1) A term policy is nearing the end of the policy term, or conversion privilege. As the end of the term approaches, many times, clients do not want to continue them. Or, much of the time, term policies are convertible to a permanent policy — without medical questions — and clients may want to convert part of the policy to keep for themselves. Selling the balance of the policy makes sense. In both of these cases, the client was going to walk away with zero when they let the policy go, so selling the policy is a way to, at least, receive something for the policy, rather than nothing.
2) A client may have retired, and the policy no longer fits in their budget. In addition, with the mortgage paid off, and kids through school and out of the house, the need for the policy may no longer be there. In addition, the income replacement that was needed while a client was working, may no longer be necessary, as savings and retirement funds replace that income, making the life insurance policy no longer needed.
3) A business owner sold their business. When a business owner retires from their business, or sells it, the “key person” policy that was put in place may no longer be needed, now that the owner is no longer part of the business.
4) The policy is “imploding” and is too expensive to maintain. This typically happens with universal life policies. As we age, the cash value in the policy can begin to deplete as the higher cost of insurance is reduced from the cash value. Many clients find themselves needing to put more money into the policy to keep it going, and they either don’t want to, or can’t, put more money into it.
5) A policy purchased to cover estate taxes is no longer needed. The estate tax exemption doubled in 2017 with the Tax Cut and Jobs Act. Clients whose estates have decreased in value, or who are no longer subject to estate taxes due to the exemption doubling, may no longer need the policy purchased for estate tax purposes.
6) Life circ*mstances have changed. One spouse may have passed away, leaving the surviving spouse with no need for life insurance. Or, perhaps, there has been a divorce, making the need for life insurance unnecessary.
7) Chronic illness. Perhaps a client is looking for ways to pay for care needs, assisted living, memory care, home care, etc. A life insurance policy can be a way to “repurpose” this asset into money to help clients be more comfortable while they are still alive.
8) A rental property, second home, or other large asset, is sold. Sometimes, clients have additional life insurance coverage to cover assets they hold. If they sell those assets, like a rental property, they may no longer need the policy in place to cover those assets.
The reality is that a life insurance settlement may be a good option.
Life insurance settlements are not perfect for everyone, nor should they be. But, in the right circ*mstances, they can be a much better option than your client lapsing or surrendering their policy.
In addition, you can help your client, and you too. Besides assisting a client, commissions are generated on the policy sale, and additional product sales may be an option for you, once the sale is completed, increasing revenue for your agency. You do not need to be a life insurance expert, nor the writing agent on the life insurance policy, to help your client.
After all alternatives have been considered, and it is determined that the policy is going to be lapsed or surrendered, a life insurance settlement can offer a significantly greater value. The evaluation of a life insurance policy is free of charge and the client is under no obligation to take any offers received. It can’t hurt to try — it can only hurt not to!
Lisa Rehburg is president of Rehburg Life Insurance Settlements, a life insurance settlements broker. Rehburg is energized by helping brokers and their clients benefit from unwanted or unneeded life insurance policies. By having access to many investor groups, Rehburg Life Insurance Settlements can place more policies and realize a better return for clients. Rehburg has been working with brokers in the health and life insurance industries for over 30 years.
Contact:
Lrehburg@aol.com
714- 349-7981
