7 Signs a Policy Should Be Reviewed

Universal life policies — particularly those issued in the 1990s and early 2000s — often carried aggressive illustrations that assumed high interest crediting rates. When those rates dropped, the cost of insurance (COI) charges began consuming the policy's cash value at an accelerating pace. The result? Premium notices that shock the policyholder.

Example: A client originally paid a modest annual premium to maintain a universal life policy. After years of low interest rates and rising COI charges, the annual cost has climbed sharply, and the in-force illustration projects a lapse within a few years even at the higher premium.

What to do: Before the client surrenders or lets the policy collapse, request a market valuation. Policies with rising costs and projected lapse dates are precisely the type institutional buyers find attractive — because their underwriters assess the policy's economics differently than the carrier's illustration engine.

Life insurance is always purchased for a reason: replace income, protect a business partner, fund a buy-sell agreement, or create estate tax liquidity. But life circumstances change. Children grow up and become financially independent. Mortgages get paid off. Businesses are sold. And estate tax laws shift dramatically.

Example: A couple purchased a survivorship (second-to-die) policy in 2005 specifically to cover anticipated federal estate taxes. After the 2017 Tax Cuts and Jobs Act raised the estate tax exemption, their estate is no longer taxable. The policy serves no planning purpose, but they're still paying premiums.

What to do: When the original purpose evaporates, the policy becomes a financial asset to be evaluated on its merits. Explore whether the secondary market values the policy differently than the carrier's surrender offer. A life settlement may produce more than the policy's cash surrender value, but results vary by case. A free evaluation shows whether a policy may have secondary-market value. See also our survivorship life settlement guide.

This is counterintuitive for many advisors: declining health increases the market value of a life insurance policy. From the perspective of a secondary market buyer, a shorter life expectancy means a shorter premium-paying period and a faster return on investment. Health conditions that make the insured feel the policy is less useful to keep actually make it far more valuable to sell.

Example: A 72-year-old client is diagnosed with early-stage Parkinson's disease. He had been considering surrendering his whole life policy for its cash value. After a formal market valuation, institutional buyers review the policy and he can compare their offers with the surrender value. Results vary by case.

What to do: Health changes create urgency. If a client has experienced new diagnoses, multiple hospitalizations, significant weight loss, use of home health aides, or other markers of declining health, get an appraisal before the client surrenders the policy. See also cancer life settlement considerations.

A policy lapse is the worst outcome for a policyholder. After years — sometimes decades — of premium payments, the death benefit disappears entirely, and the client receives nothing in return. Grace period notices are the insurance company's final warning before this happens.

Example: A 78-year-old widow holds a universal life policy. Years of underfunding have depleted the cash value to zero. She receives a grace period notice and assumes the policy is worthless. It may not be. A life settlement broker can market the policy to see whether any buyer is interested.

What to do: Even zero-cash-value policies can have secondary-market value. In some cases, a buyer may pay the grace period premium to keep the policy in force during the transaction. Time is critical, so act before the lapse date. Compare outcomes in lapse vs life settlement.

Long-term care — whether assisted living, memory care, or skilled nursing — is extraordinarily expensive. The national cost of a private nursing home room is substantial; see cost of care survey data from Genworth. When a client enters long-term care, their life insurance policy shifts from a protection tool to a potential funding source.

Example: An 81-year-old client diagnosed with Alzheimer's is transitioning to a memory care facility. Her family is scrambling to fund care costs. She holds a term-converted policy with a small cash surrender value. A life settlement may provide funds toward care, depending on the policy and her health.

What to do: A life settlement can transform an otherwise illiquid asset into immediate funds for care. This is one of the most impactful uses of the secondary market — and one that advisors and elder care attorneys should discuss proactively.

Estate plans evolve over time. Trusts are dissolved or restructured. Beneficiaries change. Tax strategies shift. When the planning architecture changes but the insurance stays the same, there's often a mismatch — and that mismatch represents trapped value.

Example: A client dissolved his Irrevocable Life Insurance Trust (ILIT) two years ago during an estate simplification. He now personally owns a survivorship policy that no longer serves any estate tax purpose. The annual premiums are an unnecessary drag on retirement income.

What to do: Review the policy within the context of the new estate strategy. If the coverage no longer serves a planning function, determine its market value before defaulting to surrender. Proceeds can be redirected toward charitable giving, annuities, or simply added to the investment portfolio.

When a carrier or competing agent proposes replacing an existing policy — often via a 1035 exchange — the assumption is that the old policy's value equals its cash surrender value. That assumption is often wrong. The existing policy may have substantial secondary market value that a 1035 exchange would forfeit.

Example: A carrier proposes replacing a client's existing universal life policy with a new guaranteed UL product via 1035 exchange. Before proceeding, the advisor requests an independent market valuation to see whether the existing policy has secondary-market value that the exchange would forfeit.

What to do: Always determine the market value of the existing policy before approving any exchange or replacement. As a fiduciary best practice, no policy should be terminated without first understanding what a third-party buyer would pay for it.