Term life: Is there any cash value?

It’s Life Insurance 101: Term life insurance is cheaper because it doesn’t build cash value over time. Right?

“Well, yes and no,” said Brad Mueller, a licensed life settlement broker with Monarch Insurance Partners, a firm in Madison, Wisconsin. “Term life doesn’t build cash value within the contract itself. But as an asset of a business or even as a personal holding, term life insurance might be convertible into a policy that could be sold to help fund retirement or long-term care.”

Life settlements offer cash for life insurance policies

The concept of life insurance being a piece of property that you could sell or count as an asset is not a new one. In fact, the U.S. Supreme Court ruled over a century ago — in 1911 — that an insurance policy could be sold like just about any other property. This holds true for term life insurance policies, even though they have no cash value buildup. One can — and many successfully do — sell a term policy based on its value in the marketplace.

This transaction is called a life settlement, and the market for these “settled” life insurance policies is an active one. Companies that buy life insurance policies (such companies are called providers) take over the premium payments, and in exchange they pay cash to the policy owner. Providers then bundle the policies into anonymous investments, which are then bought by institutional investors. These investors stand to gain if they collect more in death benefit proceeds than they pay in premiums. It’s a risky investment, but because the risk is not tied to the stock market — or really, the economy as a whole — it is considered a good way to diversify a portfolio.

Can I find a life settlement for term insurance?

How do you know if your term policy is one that might qualify for a life settlement? First, Mueller explained, “Check the policy to see if it’s convertible. This means it can be changed from a policy that has an expiration date — the date the term ends — to one that doesn’t expire until you do.” If it’s not convertible, investors won’t be interested. 

Conversion is key

“If it is convertible, then completing that term conversion will be an early step in the life settlement process.” Mueller added. He noted that even if a policy is convertible, other factors might knock it out of consideration for a life settlement. “The policy owner’s age, health status, premium amount and the face amount of the policy all play a part in determining whether a settlement makes sense financially.” Also, policy owners need to make sure that selling their policy makes sense for their beneficiaries and their need for coverage. Mueller said, “Folks buy life insurance for good reasons. We need to make sure those reasons no longer need the coverage a term policy might be providing.”

For more information about life settlements, contact Monarch Insurance Partners at 608.620.0596. Visit monarchinsure.com to schedule a meeting with a licensed life settlement broker.

Valmark Securities supervises all life settlements like securities transactions. Its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Once a policy is transferred, the policy owner has no control over subsequent transfers and may be required to disclose additional information later. If a continued need for coverage exists, the policy owner should consider the availability, adequacy and cost of comparable coverage. A life settlement transaction may require an extended period to complete and result in higher costs and fees due to its complexity. Policy owners considering the need for cash should consider other less costly alternatives. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs. When an individual decides to sell their policy, they must provide complete access to their medical history and other personal information. Each client’s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value. 

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment advisory services offered through Valmark Advisers, Inc., an SEC Registered Investment Advisor. 130 Springside Drive, Akron, Ohio. 44333-2431. 1.800.765.5201.  

Monarch Insurance Partners is an entity separate from Valmark Securities, Inc., and Valmark Advisers, Inc. The information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the material discussed, nor does it constitute an offer or a solicitation of an offer to buy any securities, products or services mentioned. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. 

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