It is recent, but several states do now require that an insurance company make the consumer aware of potential options that may be available to them when they are contemplating the cancellation of their life insurance policy. Even in those few states, it is a somewhat watered down mention that does little to actually inform the consumer of how any of the secondary market options could truly benefit them. Prior to the advent of Life Insurance Settlements, a life insurance policy holder could essentially only surrender or take the maximum loan and then lapse their policy if they needed all of the cash value. Sure, there are several non forfeiture options, but if someone can no longer afford the premiums and needs all of the cash or no longer has the need for the insurance, it is typically surrender or lapse.
So Why have I not heard about life insurance settlements until now?
It is a fact that more than 80% of life insurance policies lapse or cancel without ever maturing by way of a death benefit. Most consumers and some agents are still completely unaware of how to unlock the hidden value in an unneeded or unaffordable life insurance policy. Some Broker Dealers and Insurance Companies still ‘strongly discourage’ or outright forbid any mention of Life Settlements or other secondary market solutions to their policy holders.
That creates an obvious moral dilemma for an adviser. How can you allow someone you advise to surrender a poor performing Universal Life policy for just the cash surrender value when you know that they may qualify for a lump sum of cash that could be 10X their cash value?
How can you allow someone to lapse a convertible term policy with no cash value? If you know they may be able to sell their life insurance policy for cash to meet the current expenses of long term care, why would you not teach them? There are many new options available too, like a life settlement loan or a medicaid life settlement. A medicaid life settlement may be a great option if you need to pay for care like long term care, assisted living , nursing care, hospice or home care.