Believe it or not, it is very possible to sell some term policies on the term policy secondary market. Without cash value, insured parties most often surrender back to the carriers for no value. Under the right circumstances, they can sell them into the life settlement market. They can then provide the trust with additional cash that can be passed down to the beneficiaries or used to fund other policies.
The key is whether the policy is still convertible. As you may know, term policies can have a feature that allows insured parties to convert a term to a permanent policy. This comes with the same carrier at the same underwriting class, at the new age of the insured. A term policy that a 45-year-old insured takes out ten years ago, initially underwritten as a preferred risk, can be converted to a permanent policy at preferred rates for a 55-year-old. This is even without the insured going through the underwriting process.
Most conversion options are for a limited period, or to a certain age, so you must check to see if the term policy conversion option is still available. If it is, the policy may be marketable. One option is to exchange the term policy for a permanent one. Here, an insured member could exchange a 10-to-30 year policy for one that has a more durable death benefit. Another option is for the insured to convert to a variable universal life policy, or VUL. This option, however, contains both greater gains and heavier losses.
To see if policy conversion is worth pursuing, you will have to ask the carrier to provide you with a conversion illustration showing the premium requirements for the new policy, permanent or otherwise. Once obtained, you can contact a life settlement broker who will review the policy costs and the health records of the insured. They will then determine whether the policy is sellable and at what price.
How To Know What To Pursue
Not only do insureds often sell convertible term life insurance policies into the life settlement market, they rank just behind current assumption universal life policies as the most popular option. However, most TOLI trustees are unaware of this opportunity. The fiduciary duty of a TOLI trustee includes maximizing the value of the asset in their trust. A TOLI trustee should even maximize one that has no value.
Our comprehensive ILIT solution tolimonitor includes policy reviews and remediation to help trustees make decisions about whether or not secondary market sales should be considered for a policy and much more. To request a consultation, click here.