Danger Zones

Term Conversion Window is Expiring

During the month of May, we are taking time to explore potential danger zones when considering existing life insurance policies.  The duties of a life insurance agent do not end when the policy is implemented.  There are considerations while the policy is in-force that need to be weighed, measured, and deemed appropriate or inappropriate for a client’s portfolio.

A policy’s exit strategy is just as important as policy implementation.  A term policy has an obvious pre-determined exit that comes when the elected level paying period has ended.  Another exit strategy for a term policy is to convert it to a permanent product and start a new permanent policy.  The advantage of a term conversion is the ability to use the rating received at the time of policy implementation with an attained age.  If a client has had a change in health, they might want to consider converting their term policy to keep some coverage, since they most likely won’t qualify for a new policy elsewhere.  Term policies have conversion limits that differ by insurance carrier and product, including a cap on the policy year, a limit to the age of the insured, and the permanent products available for conversion.  We regularly have clients who need to determine if converting their term policy is the right decision.  Since term policies are not usually implemented for a long-term need, the policy is not always needed for the future and the correct path for the policy might be to surrender the coverage. 

However, surrendering a term policy does not result in any money being returned to the policy owner.  In some cases, the client might be eligible for a life settlement to recover some of the value of the premiums paid into the term policy.  We believe that life settlements should be considered before surrendering any life insurance policy, but term policies are often overlooked for this strategy.  A life settlement is the sale of a life insurance policy to a third party for a price that is higher than the cash value inside the policy.  A term policy does not accrue cash value, but converting the policy to a permanent policy first creates a product that can be desirable on the life settlement market.  Life settlements are determined by the age and health of the insured, among other variables, so not every policy is eligible.

Click on this link to read more examples of Why Your Life Insurance Needs Periodic Review.  If you determine that you or a client would benefit from a policy audit, contact us.  We are happy to help with any questions or opportunities to help you or your clients achieve their goals.  This is what we enjoy doing for only a select number of families, businesses, and charitable institutions each year, and we look forward to hearing from you.