Over 60s Life Insurance

Not all life insurance policies become death claims. It’s estimated that fewer than 5 percent of term policies are in force at the time of the insured’s death, primarily because of replacement with other policies, elimination of need, or the inexorable increase in the cost of maintaining such a policy at older ages. By definition, there’s no cash value in a term policy, so when it’s dropped (the policy owner indicates nonrenewal by simply not paying the premium due), that’s the end of it. This was the classic wisdom until life settlements exploded into existence in 1998. A term life insurance policy about to lapse for non-renewal could be worth as much as 25 percent of the policy’s death benefit on the life of someone over age 70-with health issues-who no longer needs the policy. As a result of life settlements, a whole new industry has emerged, introducing “fair market value” as a term of art into policy terminology.

Because of the emerging secondary market in life insurance policies, life settlements have literally breathed new life and value into about-to-lapse and unwanted and unneeded policies. In the typical life settlement, the ideal candidate is over age 65, has experienced a deterioration of health but is not terminally ill, has a life insurance policy with a death benefit of at least $250,000, and no longer needs or can afford the policy. The experience in no way reflects the guarantees of the policy or the issuing life insurance company. The University of Pennsylvania’s Wharton School estimated that in 2002, policy owners received $242 million more in sales proceeds than would have been forfeited to insurers if the policies had simply been dropped.

The subject policy doesn’t have to be term. Cash value policies also qualify (only 10 percent of issued Universal Life policies have turned into death claims in the 25 years that this policy form has existed), and Conning & Company found” … that more than 20 percent of the policies owned by seniors have life settlement values in excess of their cash surrender values.