In recent years, the insurance sector has experienced a significant shift as Baby Boomer-aged insurance agents have begun to retire en masse, while the pandemic and economic strain have created downturns—leaving a sizable void in the insurance market.
This situation begs the question: What will happen to their existing policies?
The answer: Many life insurance policies—perhaps hundreds of thousands—are orphaned.
What Is an Orphaned Life Insurance Policy?
Also known as an “unassigned policy,” an orphaned life insurance policy is any active life insurance policy without an agent to oversee and service it.
Life insurance policies can become orphaned when the agent who wrote the policy:
- Retires
- Passes away
- Loses touch with the policyholder
These orphaned policies actually represent a significant opportunity for insurance agents—we’ll explain why.
Orphan Policies Are a Goldmine for Insurance Agents…
A few factors make orphan life insurance policies a goldmine for insurance agents:
- Potential for new business: Statistically, the average life insurance buyer will purchase multiple policies over the course of their life. An orphan policyholder is a likely candidate for further financial opportunities.
- Ideal for life insurance settlements: Orphan policies tend to skew older, aligning perfectly with a life insurance settlement industry that is tailored to senior clients.
Reduced risk of lapse: Without guidance from an agent, orphan policyholders are more prone to letting their policies lapse. Agents can reach out to these policyholders, provide them with more suitable coverage options, and offer free policy appraisals, which have major benefits for policyholders.
…and for Policyholders, Too
For individuals with orphaned policies, a life insurance policy settlement offers numerous financial benefits:
- It provides immediate liquidity, granting the policyholder access to instant cash that can be used for various needs.
- It eliminates the ongoing obligation of premium payments, alleviating the financial strain of maintaining such policies.
- In the face of investment or portfolio losses, a settlement can serve as a means to recoup some of those financial setbacks.
- Most importantly, it can act as an immediate support mechanism for heirs, ensuring their financial stability without waiting for the eventual payout of the policy upon the policyholder’s passing.
Strategies for Marketing to Orphan Policyholders
There are a number of approaches for marketing life settlements to orphan policyholders:
- Identification and outreach: Agents should collaborate with their principals to pinpoint orphaned policyholders and systematically reach out to them. Their initial efforts should focus on establishing contact and converting them from lost orphans into genuine prospects.
- Assessing their needs: Once they make contact, agents should ascertain if the policyholder’s needs have changed since they first acquired the policy and inquire if they are aware of new financial instruments that might be more suited to their current situation.
- Segmentation: Insurance agents can optimize their marketing efforts by segmenting orphan policyholders based on their age and policy type. For example, targeting seniors with universal life policies can be lucrative for agents looking to offer life settlements.
- Policy appraisal: Before diving into the specifics of a new policy or settlement, policyholders might want to understand the worth of their existing policy. Services like those offered by PolicyAppraisal.com can be instrumental in providing a secondary market valuation.
- Educate about life settlements: Many orphan policyholders are unaware that life insurance settlements are even an option. By educating them about this opportunity, agents not only prevent potential lapses but can also turn a profit for the client while garnering additional earnings in fees.
The Scope of the Opportunity
According to Chartered Financial Analyst Paul Winandy, up to 40 percent of active insurance policies could be orphaned. Even if we conservatively peg that figure at 10 percent, that translates to hundreds of millions of dollars in policies—all up for grabs.
By tapping into this segment, agents and advisors stand to benefit immensely from new business, settlements, and extra fees.
Conclusion
Orphaned policies represent a vast, largely untouched reservoir of opportunity for proactive insurance agents and financial advisors. By tactfully approaching this demographic with a genuine desire to help them, agents can carve a profitable niche for themselves while providing valuable service to a growing, currently underserved market.
If you have a client in need of a policy appraisal, consider working with PolicyAppraisal.com. We efficiently identify the secondary market value of existing life insurance policies using a proprietary appraisal process rooted in industry pricing methodologies as well as more than thirty years’ industry experience. Contact us today for a policy appraisal to learn the actual value of your client’s life insurance policy—for free.
