What Is the Secondary Market for Life Insurance?
In its infancy the Viatical Life Insurance market place was founded to purchase life policies from persons who had a very short life expectancy and to provide them with the cash needed to pay for medical costs and other needs. The industry has evolved primarily into a market to purchase life insurance policies from seniors, 65 and older, who may be healthy and expect to live a long life or persons not so healthy.
Seniors choose to sell their policies for many reasons, here are some common reasons:
- The policy or policies may no longer be needed
- The premiums are unaffordable or perceived to be high for the amount of coverage
- The policy or policies may be outdated and replacement policies may have lower premiums
- The cash that could be received can be used for retirement purposes and planning.
Selling a life insurance policy is referred to as a ‘Life Settlement’, a ‘Viatical Settlement’, or a ‘Senior Life Settlement’. These terms generally all mean the same thing in North Carolina.
The North Carolina Department of Insurance describes a Viatical Settlement as a contractual agreement to provide the owner of a life insurance policy immediate cash in exchange for the sale and transfer of that right of ownership. The only exception is if an insured has a life expectancy of two years or less.
In a Viatical Settlement, the policy or policies are sold in a ‘secondary’ market (called providers or purchasers) for an amount of money greater than the cash surrender value but less than the benefit amount of the life insurance policy.
GPAgency is a licensed Viatical Settlement broker. We work with insurance brokers and agents, and financial planners and their clients who wish to sell an older life insurance policy or policies. The Viatical Settlement Act in North Carolina requires providers and brokers involved in the senior settlement or life settlement markets to be licensed, which we have been for more than a decade ‒ and are among one of the first to obtain this license.
The process takes some time, but we make it easy.
Gather the relevant facts:
• Medical Information from doctors and / or hospitals
• Obtain LE reports
Obtain bids and offers:
• Make the decision to sell or not to sell (your call)
• Prepare the closing paperwork
Factors Taken Into Consideration
Factors considered in the purchase or ‘bidding’ process continuously change and evolve. Though not all-inclusive, here is a list of common factors:
- Age and gender of the insured: The minimum age for consideration is 65. The older the insured the better. The life expectancy of the insured. The shorter the insured’s life expectancy, the more valuable the life insurance policy is to a provider.
- Approximately 20 percent of all life insurance policies covering persons 65 or older have a value in the secondary market greater than the cash value. The type of insurance policies providers are buying:
- Universal life: easiest to sell
- Survivorship universal life: can be sold, some providers are not currently purchasing these policies
- Term: easy to sell but needs to be convertible
- Whole life: difficult to sell
- Variable whole life: difficult to sell, subject to FINRA rules
- Variable universal life: difficult to sell, subject to FINRA rules
- The policy benefit (face) amount: The minimum face amount is $250,000. Obviously, the larger the death benefit, the more desirable the policy will be to the provider/purchaser.
- The ratio of death benefits to annual premiums: The lower the ratio of premiums required to policy maturity as a percentage of death benefit, the more valuable the policy is to providers.
- The current cash surrender value of the policy and the amount of policy loan, if any. Generally, the lower the cash value, the more valuable the policy is to providers. The larger the current policy loan the less valuable the policy is to providers.
- The insurance carrier that underwrites and issues the policy and its financial ratings, and its reputation in the industry. Financial ratings of A++, A+, A, and A- are acceptable.