Earn Six-Figure Insurance Commissions From Life Settlements

Posted by Lloyd Silver on Thu, Nov 8, 2007 @ 05:34 PM

Term Conversion/Settlement

“George,” 71, sold his manufacturing company to a publicly traded firm. He agreed to stay as a consultant for two years following the sale. The acquiring firm agreed to keep his $3,000,000 “Key-Man” convertible term policy in-force. George retired after the two-year period, and the acquiring firm decided to let the policy lapse.

The carrier notified the agent, Fred, of the impending lapse. The agent immediately called George to set up an appointment with the new CFO. He told George that term insurance often times has a substantial hidden value providing it contains a valuable imbedded option, the option to convert. The CFO found this information interesting, but was not comfortable with the idea of making another premium payment. He then asked if it were possible to receive an “offer in writing” within two weeks. I told the agent this is indeed possible, although the offer may not be the highest possible. Note that it usually takes at least five weeks to obtain life settlement quotes after obtaining the attending physician statements. The delay is primarily due to the time necessary to acquire formal mortality reports required by most--not all--institutional funders.

A formal offer of $560,000 arrived within 48 hours, which was immediately accepted. The CFO was very pleased with the outcome, which effectively doubled the company’s quarterly earnings. Nevertheless, where is the six-figure insurance commission?

Fred earned a six-figure sum on the term conversion. He is also generated additional income through ancillary sales. George had an estate liquidity problem easily solved through the purchase of permanent life insurance. The acquiring firm became disappointed with their insurance agent who, unlike Fred, is not familiar with life settlements. They are now asking Fred to write key-person insurance on newly hired executives. Again, the judicious use of a life settlement resulted in six-figures of target premium.

Settlement/Replacement Of A Failing Policy

“Maxine” and her late husband created an ILIT funded with two $6 million life insurance policies seven years ago when both were 75 years old. The interest rate assumed for the sales illustration at that time was higher than what the policies actually earned. The writing agent did not annually review the performance of the policy with the ILIT’s trustee, “Mr. CPA.” Midway though the sixth policy year Mr. CPA met with a different agent who offered to audit the insurance policies within the ILITs he manages. Mr. CPA, cognoscente of his fiduciary responsibilities, agreed to have the policies audited for a modest fee.

The life insurance audit included ordering and reviewing a current in-force illustration. The illustration clearly displayed both policies would fail before Maxine’s life expectancy unless a substantial increase in premium was made. Maxine was furious with the idea of loaning an additional $50,000 per year to her ILIT for the necessary increase in premiums. The trustee then decided to review the settlement/replacement option.

Maxine, like many 82 year olds, has some medical problems. Due to a “Table Shave” program, the agent was able to underwrite her as a “Standard” rating for a new policy. Her old policy was the life settled for $2.5 million; with the after-tax proceeds used to fund a new life insurance policy guaranteed to remain in-force (assuming the trustee makes timely premium payments). The current premium payment is now approximately equal to the assumed premium of the original policy.

The agent received a modest commission on the life settlement in order to “make the numbers work” and to build a long-term relationship with the trustee. Regardless, he earned more with one insurance sale than most agents earn in several years because of a judicious use of a life settlement.