What is Going On With Life Insurance Settlements and Why Should You Care?
There’s more opportunities in 2023 than you would think!
By Lisa Rehburg
On the surface, you may think, “What? Lisa, don’t you know this is a magazine that focuses on benefits? What are you doing talking about life insurance and life insurance settlements?” This topic is more relevant to your clients and your agency, than you may think. Whether you wrote the policies or not, your clients have life insurance. And, I venture to assume that some of your clients are seniors, and your clients that are not seniors have parents and grandparents that are seniors. The point? You have a great opportunity to help them in a unique way, and in the process, help your agency as well.
Briefly, a life insurance policy (yes, any type of policy, including term) is an asset that your client owns. A Supreme Court decision called Grigsby v. Russell in 1911, made this so. As with any asset, it can be sold for cash. The process of doing so is called a life insurance settlement.
What is going on with life settlements?
The answer, and the good news, is – a lot! More money is flowing into the market from buyers to diversify their investment portfolios, which is great news for clients. More money inflow translates to increased and better offers for clients. According to the Life Insurance Settlements Association (LISA) in 2021, approximately 3,000 life insurance policies were sold through life settlements. That’s all. That small number is because many people (and their advisors) do not know that life insurance settlements exist. These same clients realized $750 million in sale proceeds, $660 million above lapsing or surrendering their policies. On average, clients received 7.8 times the cash surrender value for their policies.
Gone are the days when only clients who had significant illnesses could sell their policies. Yes, they still can, but the market has expanded considerably. In fact, younger clients for our market that are relatively healthy are able to sell their policies. With an expanded market, this translates into more opportunity for your clients, and more opportunity for you as well.
According to the American Council of Life Insurers fact book of 2021, 9.18 million life insurance policies lapsed in 2020, representing $645.2 billion in face value. I estimate that seniors leave approximately $100 billion of face value behind annually. In addition, as our senior population expands, this solution will be even more important moving in the future. Estimates show our senior population expanding from 42 million in 2012, to 70 million by 2030. And, even better, you do not need to be the writing agent on a client’s life insurance policy, or even write life insurance, to help your client…and yourself too.
Any type of life insurance policy has the potential to be sold, including group policies. Interestingly, our business reflects an almost even split between universal life and term policies, in terms of the number of policies being sold. Whole life is a distant third, typically because premiums and cash values are higher, but sales are still possible. The average face value of sold policies continues to decline, allowing more access for clients to this market. Currently, the minimum face value for consideration is around $100,000.
Now that you know the market is excellent…
Why should you care?
The obvious answer is — this is another, unique way to help clients. Routinely, we speak with insurance agents who have clients who no longer want, no longer need or can no longer afford their policies. Typical scenarios include clients whose:
- Term policies are coming to an end
- Term policies are convertible, and they are converting part, but letting the balance of the policy go
- Universal life policies have “imploded”, meaning more money is needed to continue the policy and clients either don’t want to, or can’t, continue to fund the increased premiums
- Business or key asset (like a rental property) has been sold and they no longer need the key-person policy
- Spouse has passed away, and they no longer need coverage
- Policy premiums no longer fit into a retirement budget
These clients could be your small group business owners, your large group retirees, your Medicare clients, the parents or grandparents of your individual clients – even your auto, Workers Comp or homeowners’ insurance clients. These potential clients could be your next door neighbor, or a family member. Remember, you do not need to be a life insurance expert to be of service to your clients.
Identifying potential clients is as easy as getting the word out. Sending a letter or email to your client base is a good start. Letting your referral network, such as other agents, elder law attorneys, CPAs, financial advisors and other professionals, know about life settlements can generate new clients as well. Good opportunities also abound as you speak with clients. Ask them if they have a life insurance policy they no longer want or need, or listen for cues such as they cannot afford the premiums, or their life circumstances have changed such as retirement, divorce or a death in the family.
Life insurance settlements produce another revenue source for your agency through commission paid on the sale, and the opportunity for additional product sales, once your client has received the money from the sale. After all alternatives have been considered and the conclusion is that it is time to lapse or surrender a policy, a life insurance settlement can offer significantly greater value to your clients….and to you too!
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.