Converting a Term Policy for a Life Settlement Broker World (07/03) p.20; Lian, Philip; Soldinger, Evan
The most common method of determining pricing for a policy purchase in life settlement transactions is to weigh the policy's annual premium, project the mortality of the insured, the policy net cash value, the growth rate for the cash value, the insurance face amount, and the financial strength of the issuing company, but term insurance and life settlements remove the issue of cash values and their rates of return and affect premium projections. To reduce the resultant uncertainty, one can convert term policies to permanent plans and make decisions based on the new contracts, or buy term policies that will keep the same term premium beyond the insured's projected mortality. Not all term policies are convertible at all ages, and term premiums should be guaranteed beyond life expectancy if the policy is not convertible. A term policy that permits conversion should result in a life settlement transaction based on the converted policy's costs and values.