One of the most compelling features of a permanent insurance policy is the right to borrow against its cash value. But sometimes, policyholders borrow to an unhealthy degree — which could present a new sales opportunity.
In an article for InsuranceNewsNet Magazine, Anthony Giannone, a partner at US-based CPI Companies, explained that policyholders may take on “unscheduled” loans. This could be due to economic stress or, in the case of whole life policies, as a result of an automatic premium loan feature.
Those who don’t understand how the loans affect their coverage and possibly their tax obligations could end up over-loaning their policies. Individuals with policies from the late 1980s and well into the late 1990s may also face higher loan costs, as rates from that time were typically around 8% — 200 basis points higher than market loan rates today, Giannone said.
“Put this all together and you can see that there is a huge opportunity to identify and remediate policy loan problems that can result in new compensation and satisfied clients,” he wrote.
According to Giannone, CPI recently conducted a broad audit of life insurance policies, which covered various policy types and, loan sizes, and age groups among the insured. As a result of the audit, the company found a few carriers who were actively looking for loan transfer opportunities and knew how to make them work. They also found a premium finance company whose loan methodology was just right to rescue policies with extreme loan-to-value percentages.
“By becoming experts in the process of evaluating loan rescues, you can save clients large amounts of money by reducing their overall costs, reducing the loan interest rates and repaying loans out of the values of a newly issued indexed universal life or universal life contract, and at the same time restore the client’s originally desired benefits,” Giannone said.
He acknowledged that the process could be complex and “requires some luck in underwriting,” but stressed that it presents an opportunity to help a huge number of clients and earn large commissions.
The cash-value benefits of indexed universal life
Small employers scrapping life insurance coverage