When Suzanne Riley* bought her life insurance policy, she never dreamed how well it would live up to its name.
Only four years ago, Suzanne was like many women today. She was a single mother raising her 15- and 9-year-old daughters. She had a good job that paid the bills. Suzanne and her girls were doing fine, but then she was diagnosed with cancer.
Despite an aggressive course of treatment that included surgery followed by radiation and chemotherapy, Suzanne heard the words we all dread: "You have six to 12 months to live."
No longer able to work because of her weakened condition, and with medical bills growing, Suzanne realized that her medical insurance, disability payments, and child support were not enough. In fact, her financial situation had become so poor that she thought she might have to sell her home and move her family into an apartment. She did not want to do this.
"Cancer loves stress," Suzanne said, "so when I heard I was terminal, I tried not to panic. I knew I had to find a way to free myself from the burden and worry of my bills but still keep the house. After all we had been through and what might be ahead, I simply didn't want to put my youngest daughter through losing her home, too."
Suzanne remembered hearing about AIDS patients getting money from their life insurance companies to help pay their bills. She searched the Internet and found a broker who contacted a settlement company on her behalf. It was a connection that proved to be the answer to her prayers.
"When I called the settlement company, I really didn't know what to expect," Suzanne said. "But the people couldn't have been nicer. They were so supportive and kind; I simply couldn't have asked for more compassionate people to help me work through the process."
A Concept Whose Time Has Come
Like Suzanne, most people who are aware of the concept of selling a life insurance policy believe the practice began in the United States in the mid-1980s as a way to help AIDS patients pay for their care, medicines, and living expenses during their final days. The practice actually began, however, in the mid-1800s in England. Today, it is not only the terminally ill selling their unwanted or unneeded policies, but also investment-savvy seniors who realize that life insurance is an asset they can sell, just like any other asset they own.
In fact, during the past decade, the secondary market for life insurance policies has grown tremendously. In 1990, only six companies took part in the market and bought about 500 policies with a face value of $40 to $50 million. The Federal Trade Commission now estimates that $500 million in life insurance policies are sold annually.
Helping Clients Realize the True Value of Their Insurance
The first step in helping clients realize the true value of their life insurance policy is to learn about viatical and life settlements and the companies who provide them.
Viatical settlements, such as the one Suzanne received, are available for people of all ages who have a life-threatening or chronic condition that limits their quality and length of life.
Viaticals enable people to sell their life insurance policy at its present-day value. They then can use the cash to pay medical bills, make house payments, compensate for loss of income because of illness, or do whatever brings them satisfaction and comfort.
Life settlements, on the other hand, are for people who are 65 or older regardless of their health status. They offer insureds the opportunity to sell policies they have had for at least two years for the fair market value. Seniors who sell their policies can do whatever they want with the money, from taking a dream vacation to making other investments that might yield better returns.
Within the settlement industry, there are two kinds of companies, providers and brokers. Providers buy policies on behalf of third-party investors while brokers take the policies to market.
Finding a company with which to work is as easy as searching the Internet. A good place to start is with the membership list at the Viatical and Life Settlement Association of America Web site, http://www.vlsaa.com/. VLSAA is a professional organization that promotes the development, integrity, and reputation of the viatical and life settlement industry. The organization has a rigorous membership application process and holds its members to the highest professional standards. Agents also can find viatical and life settlement providers and brokers advertised and occasionally featured in trade publications. Trade shows are another good resource.
Knowing When to Sell
Although the general public is becoming more aware of their option to sell unwanted or unneeded life insurance policies, often it is the producer who will initiate the transaction as part of managing his or her client's portfolio.
Good candidates are clients whose insurance needs have changed recently because of such things as:
o Medical or other long-term care expenses;
o Financial independence of children or other beneficiaries;
o Sale of business;
o Payment of a mortgage or other major debt;
o Death of a spouse;
o Divorce;
o Change in tax laws;
o Reduction of estate size; or
o Other circumstances that make their current policy obsolete.
Policyholders who would like to lower their premiums, purchase a replacement policy that better meets their needs, or find money for other expenses such as investments, paying off debts, or even taking a dream vacation also might be interested in learning more about their settlement options.
Making the Transaction
While every company is different, producers usually can expect to be asked to complete some paperwork and provide copies of the policy and other relevant documentation. The settlement company then will review the application package to determine whether it is a viable case. Settlement companies often consider many variables, such as gender, health, age of the insured, and the financial rating of the insurance company, before making an offer. Because many variables must be reviewed, settlement companies often will be unable to provide an estimate in advance.
For Suzanne, the process went so smoothly she described it as almost effortless: "I filled out the paperwork, and my doctor sent in my reports. In a matter of weeks, the settlement company called to tell me they would purchase my policy. I was shocked that it went so quickly, and the amount of the award was much greater than I expected." Compared to everything she had been through trying to get her disability benefits started, Suzanne said that arranging her viatical settlement was easy.
Everyone Wins with Settlements
Clients aren't the only ones who reap the benefits of a life insurance sale. As your clients' insurance adviser, you can:
o Make a commission on the sale of the policy;
o Continue to earn residuals on the original policy;
o Receive an additional commission and residuals if the client purchases a replacement policy or other investment products;
o Earn a commission on a conversion if the policy was term coverage;
o Experience the satisfaction of knowing you have fulfilled your professional responsibility; and
o Gain a reputation as an adviser whose first priority is the best interests of your clients.
Perhaps the greatest reward is in knowing what the settlement has meant to people such as Suzanne.
"I can't explain what a relief it has been," she said. "And my doctor can't believe I have made it this far. I'm convinced that if I still had the burden of my bills, I wouldn't be here today. I think it is only because of my viatical settlement that I have been able to save my home and have this quality time with my daughters."
* The client's name has been changed to preserve confidentiality.
Denise Miller, CSA, is a licensed life and health agent and the owner of Seven Hill Settlements, a life and viatical settlement provider. With nearly a decade experience in the industry, Ms. Miller has provided insight and advice in a federal court case and developed an exclusive model to assess the value of a life insurance policy based on a desired rate of return on the investment. Devoted to promoting and enhancing understanding of the settlement industry, she frequently addresses groups of insurance professionals and financial advisers.
