Advisors Blog

GBS and Life Settlements 

Do you have clients that would benefit from a life settlement of their existing, unwanted or unaffordable life insurance policies? If you have older clients with policies that are no longer needed, GBS can help facilitate a life settlement. The settlement market has been especially active recently due to changes in the marketplace such as: lower interest rates, higher available capital, and overall improved economic conditions. We've seen an uptick in larger offers lately as more qualified buyers enter the marketplace.

What is a Life Settlement?

A life settlement is simply the sale of an existing life insurance policy to a third party (such as an investment firm or bank) for a lump sum; the lump sum being greater than the cash surrender value but lower than the full death benefit or face amount. Generally, this is a non-taxable event, assuming the settlement does not exceed basis in the contract. Policy owners older than 65, or those with serious health concerns, may be candidates for a life settlement.

Why a Life Settlement?

Policy owners who no longer want, need, or can afford their life insurance now have the ability to receive a cash payout from a lapsing or obsolete policy (if they qualify). A client with an existing life insurance policy may choose to sell it (or "settle" it) for a variety of reasons, including changes to health, poor policy performance, premium is no longer affordable, business and estate planning needs have changed, or has an immediate need for cash.

What Policies are Eligible?

Our settlement providers will consider almost any type of life insurance policy, including term, VUL/UL, whole life, convertible group, and survivorship products. Term insurance, generally, must be convertible to permanent coverage.

Recognizing Life Settlement Opportunities

In order to determine if a life settlement is appropriate for your client, many planners and financial consultants are suggesting policy appraisals as an approach to uncovering opportunities and suitability. Clients over the age of 70 may benefit from a no-obligation appraisal of their exiting life insurance to ensure that a life settlement is a good fit. Your clients are already familiar with having assets such as homes, properties, jewelry, art, etc. appraised, why not their life insurance?

Case Study: Male, 78 with Diabetes 

• $4,000,000 UL
• Premium of $54,000
• Reason for selling: No longer concerned about estate tax liability and no longer interested in paying premium
• Received gross offer of $450,000

Case Study: Female, 84 in Standard Health 

• $2,000,000 UL
• Premium of $37,000
• Reason for selling: Can no longer afford to pay premium
• Received gross offer of $615,000

If you are interested in learning more about life settlement opportunities, or starting the policy appraisal process, contact your GBS brokerage manager today. We look forward to working with you, and continuing to provide you, and your clients, with excellent service!