Before a client surrenders a policy, find out what it’s worth.
When a client no longer wants or can afford a life insurance policy, surrender is rarely their best move. A life settlement can deliver multiples of the cash surrender value, and AdvisorServe brings the brokerage process, compliance oversight, and competitive auction behind it.
One of the most overlooked options in financial planning.
Most policy owners, and many advisors, don’t know a life insurance policy can be sold. The numbers tell the story.
in policy face value lapses by seniors over age 65 each year.
policy owners didn’t know they could sell their policy.
of financial advisors admit they lack knowledge about life settlements.
What happens to an unwanted policy depends on one decision.
The same $1,000,000 universal life policy, with a $6,743 cash surrender value, can end three different ways.
Let it lapse
Premiums stop, coverage ends, and every dollar paid in is gone. This is what happens to roughly $112 billion of face value every year.
Surrender it
The carrier pays the cash surrender value. For an older insured with a performing policy, this is usually a small fraction of what the contract is worth to an institutional buyer.
Sell it
Through a brokered, competitive auction, the policy is sold for its fair market value. The client receives a lump sum and stops paying premiums.
Figures from an actual AdvisorServe case (“Jim,” age 84). Gross offer, before commissions and fees. Each client’s experience varies and there is no guarantee of similar results.
Is this policy a candidate?
Answer six questions about your client and the policy. The result is preliminary only; a policy evaluation confirms the real market value.
Most settlement candidates are 65 or older with at least one of these scenarios.
Estimate a policy’s settlement value in under two minutes.
Uses 2017 CSO mortality tables and probabilistic DCF modeling, the same methodology institutional buyers use, to produce a preliminary value range instantly.
Two ways to create enhanced value.
A streamlined offer for speed and simplicity, or a formal auction for the highest fair market value. We help you choose.
Enhanced Cash Value
A streamlined route: no medical underwriting, immediate cash above the carrier’s surrender value.
Ideal when
- The insured is age 70 or older and in good health
- A faster solution or near-term cash payout is preferred
- The client doesn’t want to share medical information
Auction for High Market Value
A formal, multi-round competitive auction across the leading institutional buyers. The process that consistently drives offers higher.
Ideal when
- The insured is age 60 or older
- Maximum proceeds matter more than speed
- There is time for a multi-round, negotiated process
Competition is what moves the number.
A direct provider’s duty is to the investor, to buy policies cheaply. A licensed broker’s duty is to the policy owner. The difference shows up in the offer.
A $1.5M convertible term policy. The client had a direct offer in hand and asked his advisor for a second opinion. The negotiated result was more than 2× the direct offer. Gross figures; each client’s experience varies.
Real-world outcomes.
Names changed for confidentiality. Each client’s experience varies; there is no guarantee of similar results.
“Jim,” age 84
My premium increased unexpectedly, and I was no longer able to afford it. I was going to have to let the policy lapse.
- Policy type
- Universal Life
- Death benefit
- $1,000,000
- Cash surrender value
- $6,743
- Original premium
- $10,580 / yr
- New annual premium
- $65,373 to age 95
- Life expectancy
- 6–7 years
Gross, vs. $6,743 surrender value
25.7× surrender value“John,” age 65
I originally bought my term policy for business and estate purposes. Now that I’m retiring, I no longer need the policy for my business.
- Policy type
- Keyman Term
- Death benefit
- $5,000,000
- Conversion status
- Privilege ending
- Plan
- Convert $2M, lapse $3M
- Outcome
- Sold the $3M instead
Gross; proceeds funded years of premium on the converted $2M
From a policy about to lapse“Rex,” age 62
I’m glad I contacted my financial advisor for a second opinion. I had no idea how much my policy was worth.
- Policy type
- Term (Convertible)
- Death benefit
- $1,500,000
- Direct offer received
- $315,000
- Method used
- Competitive auction
Gross; more than 2× the initial direct offer
2.1× the direct offerHow are life settlements taxed?
After the Tax Cuts and Jobs Act of 2017, taxation on life settlements is often non-existent or minor. There are three tiers.
The portion equal to total premiums paid into the policy.
The portion of the cash surrender value that exceeds the cost basis (typically $0).
The portion of the offer that exceeds the cash surrender value less cost basis.
When life expectancy is two years or less, the transaction may qualify as a tax-free viatical settlement. Individual rates vary. Confirm with a tax professional.
Run a quick after-tax estimate
| Tax-free return of basis | $350,000 |
| Ordinary income portiontier two | $0 |
| Long-term capital gaintier three | $100,000 |
| Estimated tax | ($15,000) |
| After-tax net offer | $435,000 |
Illustrative only. Defaults reflect the sample case above; rates are assumptions you can change. Not tax advice. Results depend on the client’s facts and should be confirmed with a qualified tax advisor.
Five steps from initial review to closing.
Handled by AdvisorServe and the Valmark life settlement team on your client’s behalf. You stay the advisor of record throughout.
Evaluate
Review the policy and gather initial information to determine fit and preliminary value.
Advisor and AdvisorServeMarket
Order medical records and life expectancy reports. Position the policy for the secondary market.
AdvisorServe and ValmarkAuction
Run a multi-round competitive auction across the leading institutional buyers.
Valmark life settlement teamNegotiate
Negotiate with the top bidders to lock in the highest fair market value for the policy.
Valmark life settlement teamClose
Execute closing documents, transfer ownership, and deliver proceeds to your client.
Proceeds to the clientThree steps to a preliminary policy evaluation.
No cost and no obligation to evaluate. Most cases can be read within a short call.
Contact us for an initial review
- Insured’s name and date of birth
- Brief summary of the situation
- 15-minute call with Seth or Greg Freeman
We help you gather documents
- In-force policy illustration
- Current policy information
- Additional health information if needed
We prepare a policy evaluation
- Preliminary estimate of market value
- Consultation on the case
- Determine how to move forward
What is this policy worth?
Important considerations and disclosures
In a life settlement agreement, the current life insurance policy owner transfers ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller’s death.
A policy owner should consider the continued need for coverage and, if planning to replace the existing policy with another, should consider the availability, adequacy, and cost of comparable coverage. Policy owners considering the need for cash should consider less costly alternatives to a life settlement.
When an individual decides to sell their policy, they must provide complete access to their medical history and other personal information that may affect their life expectancy. After the sale, there may be an ongoing obligation to disclose similar and additional information at a later date.
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, such as Medicaid, and there may be tax consequences. Discuss the taxation of proceeds with a qualified tax advisor.
A life settlement transaction may require an extended period of time to complete. Due to the complexity of the transaction, fees and costs may be substantially higher than other securities. Once the policy is transferred, the policy owner has no control over subsequent transfers.
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. The case study figures shown are gross offers and will be reduced by commissions and expenses related to the sale. Securities offered through Valmark Securities, Inc. Member FINRA/SIPC. Investment Advisory Services offered through Valmark Advisers, Inc., a SEC Registered Investment Advisor. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431 · 1-800-765-5201. AdvisorServe is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
Valmark and its registered representatives act as brokers on life settlement transactions and may receive a fee from the purchaser. Valmark supervises all life settlements like a security transaction.