Illustrations: This Unknown Roadblock Slows Down 90% of Life Settlements
The primary delay in getting Life Settlement quotes is obtaining an illustration for the cost of premiums from the carrier (life insurance company). This particular hurdle can stop a sale in its tracks if you have a Convertible Term or Universal Life insurance policy.
Question 1: What are “illustrations”, and why can they slow down a Life Settlement?
Life Settlement Providers (Funders, Buyers) must know each policy’s minimum annual cost of level premiums to the Insured’s age of 100. An “illustration”, along with the Insured’s lifespan estimates, help Providers decide which policies to buy and which to decline. Illustrations are created by the policy owner’s life insurance company (“Insurance Carrier”). Funders have to be able to prove they can afford to buy an insurance policy, so they have to know how much it would cost if the Insured lived to age 100. The basic illustration will show the lowest-cost of level annual premiums with level death benefit to age 100.
Question 2: How long does it take my Carrier (Insurance Compay) to generate the illustrations?
An average insurance clerk can create a premium illustration in 10 to 20 minutes, but the carrier may not instruct the clerk to do this for 3 to 4 weeks. Life Settlement Brokers review the illustrations closely and often must request corrections.
Question 3: Why do most Insurance carriers “slow-walk” premium illustrations?
The answer is quite simple: they do not like Life Settlements because they result in a death claim that must be paid.
To answer lies in the business model of Life Insurance. Life Settlements result in death claims, while most life insurance policies do not.
88% of all Universal Life policies have been lapsed or terminated before the Insured’s death. Carriers prefer to receive premiums and not have to pay death claims. It has been this way in America since 1765 when the first life insurance policy was sold.
Carriers have a pretty good idea how long Insureds may live. Based on decades of data, they also know with great precision when most Policy Owners will terminate their policies. When a policy is terminated, the carrier walks away with years of premiums without having to pay the death benefit. Life Insurance Carriers price their products according to these calculations. It is their business. That is the reason only 12% of Universal Life policies are in force when the Insured dies.
Question 4: Are Life Settlements good or bad for the Life Insurance Industry?
Americans are covered by some $20 Trillion of life insurance, including Group. Every year an estimated $180 billion of policies are lapsed or terminated with no effort to get Life Settlement quotes. During the past four years, about $8 billion of Life Settlements were transacted. While not insignificant, it is only a small portion of the lapsed policies.
The Life Settlement Industry takes the position that it helps agents sell more new life insurance because a Life Settlement must be greater than the cash surrender value of a permanent policy. Term life policies like auto, home, and health policies, have no cash surrender value, but they can be sold.
Question 5: I’m trying to sell my insurance policy – what can I do to speed my Carrier up?
A veteran Life Settlement Broker can guide you through the process. We now ask our clients to send our one-page Life Insurance Information Release Form right away so we can get this process underway. Our clients may then complete the rest of their Life Settlement Application as convenient.
Question 6: What about premium illustrations for Convertible Term policies?
Most Term policies may be converted to Universal Life by a specific date.
Providers greatly prefer Convertible Term policies and must submit conversion paperwork before the policy’s conversion deadline. A good strategy is to seek a Life Settlement no less than a year before the conversion cutoff. If this deadline is missed, the Term policy’s premiums will begin to increase as scheduled in the policy. Unless the Insured is terminally ill, a non-convertible Term policy will not be saleable.
A minority of carriers only offer expensive Whole Life as a conversion option, and they are very difficult to sell unless the Insured is terminally ill. An existing Universal Life policy’s illustration to age 100 will be calculated as if any loan has been paid off. Life Settlement Brokers are responsible for knowing how to secure proper illustrations and will ask for the policy owner’s assistance only if stonewalled by the carrier.
Question 7: Why are Universal Life and Convertible Term Policies the most impacted by illustrations?
It’s a fair question. Whole Life illustrations are much easier because the premiums and cash values are guaranteed. Since Whole Life is designed to build cash value until it equals the face amount at a given age, usually 100, they are very hard to sell unless the Insured is severely to terminally ill. Carriers know this and as a result, Whole Life illustrations are a snap. That’s because they do not think you will be able to sell it. We’ve helped our client sell their Whole Life policies, so this can work out in our client’s favor.
Speeding up your Life Settlement by putting illustrations on a fast track requires two things: knowledge of the type of policy you have, and a strong relationship with your broker. Together you can work to ensure that illustrations get in the hands of the funders quickly so you can quickly sell your policy.
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