If there is one thing we all come across, it is adverse selection. You know, the client who NEEDS to have insurance but only realizes it after he had a quadruple bypass last year and has a double digit A1C level.
“Well, what do you currently have in place?” you might ask him.
“I think I have a few policies I took out over the years, but I am not sure what is still around, and I don’t think they’re worth very much.” he replies.
“If you give me everything you have, I will see what I can do for you.” you conclude.
Two weeks later he hands you a stack of papers and you have no idea what your looking it. This is the exact point you should call our office. And this advisor did just that.
We received all 183 pages of the package in the mail two days later.
After sorting everything out we found two policies currently in force and four that had lapsed.
There is an old Whole Life policy his parents took out on him. It has a face of $15,735 and he has not paid premiums on it since the late 80’s. There was also a $500,000 15-Year Term policy he purchased 11 years ago with an annual premium of $1,474.
We started running conversion quotes on the Term and found that, at most, he could afford $100,000 of permanent coverage, and even that was going to double his current premium to $2,964 annually.
There is another option. We discussed it with the advisor and he went back to his client.
“Would you be interested in having your Term Policy Valuated?”
After explaining what it was and how the process worked, the client agreed to give it a shot.
We started the underwriting process to receive a Life Expectancy quote.
It took roughly two months to complete the underwriting process, which included gathering half a dozen APSs. His Life Expectancy was 7 – 10 years based on several third-party recommendations. We then sent his Life Expectancy and Conversion Quote out for purchasers to bid on.
We received our first bid of $60,000 about one week later. Unsatisfied, we waited. Slowly but surely the bids increased. $75,000, $100,000, $145,000… Eventually, the client decided to take an offer of $155,000 – it had been on the table for almost two weeks and was about to be pulled.
We requested the forms package and the day it arrived at our office, we were told one last bid came in. $185,000.
So, we requested the new forms.
After signing all the required documents, the purchaser wired the funds over to the client’s bank account.
The client will have to pay capital gains taxes on everything over $16,214 but should walk away with just shy of $160,000.
As an FYI, that is a 36% Internal Rate of Return on his Term Premiums.
The client is thrilled. Instead of paying $3,000 a year for $100,000 of permanent coverage, he now has $160,000 – sitting in his bank account – to do with as he wishes.
There is opportunity everywhere. If you have clients that do not seem to fit a mold that you are familiar with, that is ok, give us a call and we will see if there is a mold you might not be acquainted with.