Convertible term question

Please educate me...As far as my knowledge goes is that a life settlement can be done only on a Cash Value policy. You talk of buying clients convertible term policies. How does the client recieve something for nothing...referring to no cash value in a term policy.

I know that policies have something called an interpolated terminal reserve. It has more to do with the insured's current life expectancy and policy costs than cash value from my understanding.

For instance, if you were in the 3rd year of a 30-year level term policy for $1,000,000 and the insured was very terminally ill and under hospice care, you could easily find a buyer for a lot of money. The cash value wouldn't matter.
 
I know that policies have something called an interpolated terminal reserve. It has more to do with the insured's current life expectancy and policy costs than cash value from my understanding.

For instance, if you were in the 3rd year of a 30-year level term policy for $1,000,000 and the insured was very terminally ill and under hospice care, you could easily find a buyer for a lot of money. The cash value wouldn't matter.

More and more life insurance companies offer policies with living benefits so-called where the client receives 90% of their death benefit if they have been diagnosed as termininal. This obviates the need for a life settlement just to do a fire sale to raise some cash.

The life settlement company has no real insureable interest in the client. The fact that it may be legal/allowable and not yet banned by regulations does not create an insureable interest where there is none. It is a new field and more wide open now than it will be in the future. Some states will take a dim view on some practices. Others won't. Some of it may even be handled at the contractual level where carriers may have be able to write policies/contracts that do not allow re-sale. A couple carriers ask in the app whether you intend to re-sell so I presume they are asking for a reason. I never had a client answer yes so I don't know what the ramifications are. The law and regulations are unsettled at this time but you can be sure that the final chapter has not been written. Insurance companies rely upon a certain lapse rate ,and re-sale of the policy screws everything up. They have the clout to push the "no insureable interest" issue in states.

Winter
 
I know that policies have something called an interpolated terminal reserve. It has more to do with the insured's current life expectancy and policy costs than cash value from my understanding.


The interpolated terminal reserve rate is usually more than the cash surrender value, but less than a life settlement value. From my understanding it is used to receive a tax write off.
 
More and more life insurance companies offer policies with living benefits so-called where the client receives 90% of their death benefit if they have been diagnosed as termininal. This obviates the need for a life settlement just to do a fire sale to raise some cash.

This is true BUT you do not have to have a terminally ill client to do a Life Settlement. Life Settlements can be done on individuals that have an LE of 2-20 years. If you have a senior client with a convertible term policy, you should look into doing a life settlement for them. I'm sure your client (who does not want to convert it for himself) would be thrilled to learn that they can get a large sum of money for their policy and only lose the last few months of coverage.
 
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