How to Sell My Universal Life Policy
Welcome to Life Settlement Option, a broker solution to help policy owners understand the life settlement marketplace, and represent their case to negotiate for the highest offer when selling. In this article I'll help explain how to sell my universal life policy.
First off, if you're interested in finding out how much your policy is worth to investors with no obligation, take 30 seconds to fill out the free appraisal request form. With some basic information we can help determine some approximate values of where we think offers will come in for your policy while also answering all the questions you may have.
If you happen to own a universal life policy, the good news is that most policies that are purchased are universal life contracts. Universal life policies are a form of permanent life insurance, and can generally stay in-force for as long as you live.
While owning a universal life insurance policy is good from a life settlement standpoint, an independent study found that as much as 85% of universal life insurance policies do not end up paying the death benefit. This is due to the policy either lapsing from non-payment, or surrendering the policy for the cash value. This means that trying to hang into this policy until you pass away puts you in the 15% that actually keep their policy for that long, and may not be the best way to go.
I always tell clients that if they need the coverage and can afford it, by all means they should hang onto it. The longer the insured lives though, typically the higher their cost of insurance becomes, and eventually these policies can become unaffordable to keep in-force for an individual.
Investors have deep pockets with sometimes billions of dollars to buy and manage policies. They can afford to pay out hefty premiums if it means they can make modest annual returns on the money they've invested. Life insurance is not a get-rich-quick scenario, and as such some of the policies they buy they will end up losing money on when the insured lives longer than expected. Because they are able to buy many policies, the ones that pay earlier than expected balance out those losses.
Getting back to the intricacies of universal life policies, because of their flexible nature, they tend to be less expensive than whole life policies, and don't often carry the same level of cash value that whole life policies do, which means investors have a better chance of offering you more money than your surrender value, and when they can't do that then it's better for you to simply surrender your policy if you don't want to keep paying the premium.
Universal life polices come in different shapes and sizes, which can effect how much an investor is willing to pay to purchase an existing contract, and I'll explain their differences.
Guaranteed Universal Life policies are often the most attractive types of contracts for investors. This is because most permanent life insurance policies have an increasing cost of insurance with age, but guaranteed universal life contracts do not.
When a client is first applying for life insurance and they compare the premiums of a guaranteed universal life plan with a traditional universal life plan, they find that it appears much more expensive while it doesn't even accumulate cash value. In essence, it appears as a really expensive term policy that lasts for a lifetime. And while this premiums looks expensive, it ends up being much cheaper when the insured gets much older because their cost of insurance remains level the entire time.
With traditional universal life contracts, if you fund the cash value account properly, then you should be OK to pay level premiums into old age and keep the policy in good-standing. The problem is, the expenses and performance on the policy are not guaranteed. This means it's possible the policy was projected to stay in-force to age 100 with a $15k annual premium, but because of an economic downturn, the investments the original illustration were based on under performed, the insurance company can come back and say now you need to pay $25k a year for the same coverage.
Another problem that occurs is that once policy owners have accumulated some cash value, they have the option of reducing their premium or even skipping it altogether. This might be perfectly fine in the short term, but if you end up living a longer life this could put you in danger of lapsing much sooner than projected or eventually face an extremely high premium just for another year of coverage. It's often at this point when people decide that their contract is no longer working for them, and are better off selling it and getting out from under the premiums.
In your traditional universal life plan, you typically commit to a low annual percentage rate that grows your cash account balance in the contract. Because it's a low percentage, it's not overly exciting, but it also means your policy charges are lower.
Another type is the Index Universal Life contracts. These base you annual interest percentage on index performance, which could be a bit better than the fixed interest amount, but it could also be 0% if the market is down. Your account value never goes down though outside of using it to pay policy charges and premiums if you don't pay the premium to cover those costs.
And lastly there's Variable Universal Life, which actually invests your cash account balance into the market. Because your money is in the market, it go up a bit and it can go down a bit. Oftentimes the contract will include certain guarantees, and because of this they also charge higher fees, so while you might benefit from the long term growth of the market, that performance is pulled back a bit to pay the policy charges. On top of that, this money is designed to help fund your future cost of insurance, so if the market takes a dip when you're older, it may hit even harder on your account values when they go to collect your premiums. Variable Universal Life policies are known as being really expensive, and previous to the 2008 crash they looked really appealing, but instead have turned out to be bad investments. Insurance carriers often push their agents to sell their variable products because they make the most money for the insurance company and also pay the agent the highest commission to sell them, but unfortunately haven't been great for the consumer in the long term. Some investors will still buy them if they can make the numbers work, but they don't typically yield as much in terms of a settlement amount. Still, it's probably better to sell it than hang onto it for years to come.
When we bring a universal life policy to market, there's a few things we need to collect to prepare your case for market.
An investor is going to use underwriting to get an understanding for how long you are likely to live, and will also need to see a policy illustration to see how much those premiums are going to cost. This way they can figure out about how much this policy will cost to keep in force and for how long it will be before they receive any of their investment back.
For underwriting, there's no exam, we simply need to collect your recent medical records so the underwriting has a strong understanding of what health concerns you may have and how you're managing them.
On the insurance side we need to order an in-force illustration with level premiums to age 100 to see what it would cost to keep your policy in-force. I can help you do this with a 3rd party info release form, or you can call the carrier yourself and request it. It's also helpful if we have a recent annual statement and the original contract as there are certain numbers