Krasner Life Settlement and Premium Finance

The question was: I recently completed an annual review for a 67-year-old client who will be entering retirement. He purchased a ,000,000 term policy 5 years ago and we have determined that he still has a need for the insurance. We are considering converting it to a permanent guaranteed UL policy. Are there any other planning options that may be available by way of the secondary market?

The answer is: Assuming the client is insurable, yes. Before converting, advisors should look at all products that are available for conversion and evaluate which product fits the client’s needs.

Assuming cost and guarantees are the main issues, you should start by comparing convertible products to what is available for new issues at the same age and face amount within the same company as well as with competitors.

The next step is to see if the in force term policy would have value within the secondary market upon conversion. This can be accomplished by simultaneously underwriting the client for 1) new insurance and 2) the secondary market value for the in force policy.

Once you know the market value of the in force policy, consider whether the proceeds from a life settlement could be used to reduce the outlay toward the purchase of a newly issued guaranteed UL product. It is quite possible this strategy would yield a new policy with a lower total cost and/or superior performance or stronger guarantees.

Before pursuing this course, remember that the original policy will remain in force so you should make sure that this will not disrupt the client’s future insurability or affect the financial justification for additional insurance.

Michael Coben
Senior Vice President, Account Services
Coventry
Fort Washington, Penn.