About Coventry Direct
Whether your life insurance premiums are too expensive to maintain, you have more life insurance coverage than you currently need, you need help with increasing medical or long-term care expenses, or you’d like to boost your retirement funds, Coventry Direct can help you sell all or part of your life insurance policy for cash.
According to Coventry Direct, this process—known as a life settlement—can help you realize “significantly” more value than if your life insurance policy lapsed or was surrendered. In fact, Coventry claims that a life settlement could help you receive 4X more than the surrender amount!
All you have to do is complete an online form to see if you qualify, and Coventry Direct promises to “help you discover your life insurance policy’s hidden value.”
If you’re thinking about selling some or all of your life insurance policy, you have a lot of questions. After all, you’re probably talking about a significant chunk of change here. What are the details behind a life settlement? Is it a good idea? What are the pros and cons? When it comes down to it, is Coventry Direct your best option?
Let’s start answering your questions by taking a look at life settlement basics.
What Is a Life Settlement? How Does It Work?
According to the Life Insurance Settlement Association (LISA):
“A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured.”
From a legal perspective, this is possible because a life insurance policy is considered property, similar to stocks and bonds. As such, they can (among other things) be borrowed against for a loan and sold to another individual.
Here’s a simplified look at how it works: A portion of every payment you make on a life insurance policy goes toward increasing its cash value. So, all things being equal, someone who’s paid on their policy for 20 years will almost certainly have more cash value at stake than some who’s been making payments for 5.
Depending on the type of policy you have though (e.g. whole, universal, variable, etc.), your policy can also gain cash value in other ways. These include formulas determined by the carrier, current interest rates, subaccounts like stocks and bonds, and more.
Now, let’s say that you’re 70, in poor health, and can’t afford your monthly payments any longer. You’ve been paying on your policy for decades and it now has a total cash value of $250K. However, if you were to surrender your policy to the carrier, it might only be worth a fraction of that amount; say, $30K.
Enter a company like Coventry Direct, who could arrange to purchase your policy for $180K. Sure, it’s much less than the actual value of the policy, but much more than what you’d get if you were to surrender the coverage. Then, when you passed away, the company would cash in your policy and receive the full $250K, netting them a $70K profit.
But hold on: Is Coventry Direct the company that will purchase your life insurance policy, or is it someone else?
Does Coventry Direct Purchase Life Settlements?
According to a disclaimer at the bottom of their website:
“Coventry Direct is a marketing company. It is not a life settlement provider or broker. Coventry Direct will refer qualified policies to a licensed entity.”
In other words, the answer is no. Instead, Coventry Direct acts as a kind of referral service, essentially advertising policies to potential investors, who often try to outbid one another. However, it appears the company will qualify your policy prior to submitting it to investors, which can be determined by “your age, type of insurance policy, the premiums and your health.”
You’ll also need to be 65+ (or have had a change in health) with a life insurance policy face value equal to or greater than $100K.
Regardless whether you go through Coventry Direct or another company, is a life settlement a good idea in the first place?
Life Settlement Pros & Cons
As we briefly discussed above, perhaps the biggest benefit of selling a life insurance policy is that you can free up cash to use for medical expenses, retirement funds, or just about anything else. And life settlements can be even more beneficial depending on your reason for selling (i.e. can no longer afford the premium, etc.).
On the other hand, if possible, most professionals recommend keeping life insurance policies in force until the policyholder has passed. Why? Because the payout to spouses and heirs will be much greater than anything offered through a life settlement.
On top of this lower amount, any income earned through a life settlement may be taxed as income, depending on how much premium you’ve paid (generally, money paid as part of a life insurance policy is non-taxable). Also, depending on your state, the life settlement industry may be largely unregulated, and some agents don’t have to be licensed or registered with the state in order to run their business. In short, there could be very little oversight of the industry in your state.
Finally, keep in mind that the life settlements industry is relatively new, and competition between companies can be intense. As such, you may experience some hard selling techniques after reaching out for a quote.
To help protect yourself and ensure you’re making the right decision, the Financial Industry Regulatory Authority (FINRA) recommends uncovering answers to the following questions:
- Is the life settlement provider licensed in my state?
- What will happen to my policy? Will it be held, sold to another company, or packaged with other policies and sold to investors?
- What information is required? Who needs it, and what will they do with it?
- What’s the best way to protect my privacy?
- Am I getting the best price for my policy?
- What are the transaction costs/fees? Are there any tax consequences?
- Am I able to change my mind? If so, will there be any penalties?
- Is this in my best interest? Am I being pressured into making a decision?
Considering everything we’ve talked about so far, what are Coventry Direct’s customers saying about their experiences?
Coventry Direct Customer Reviews
Considering the length of time the company’s been in business, along with the fact that they’re the largest life settlement company in the industry (more than $3 billion purchased to date), there was surprisingly little online customer feedback for Coventry Direct at the time of our research. Obviously, the company’s busy buying policies, but it doesn’t seem like customers are talking about their experiences online once the process is complete.
In fact, the vast majority of the online reviews we encountered were for Coventry Direct’s parent company (Coventry Health Care, Inc.), which is primarily a health insurance provider. This was especially the case on Coventry’s Better Business Bureau page, where they had an A+ rating, despite 400+ closed complaints (as of 5/2/16).
We also found a 2014 Business Insider article covering AIG’s litigation against Coventry Direct, claiming they “used a network of shell companies to artificially inflate the prices to [some of their investors].” The case appears to have been settled earlier this year.
Is Coventry Direct Your Best Option for Life Settlements?
If you search online for life settlement companies, you’ll find that Coventry Direct is certainly the largest. However, they’re definitely not your only option. To find a member company in your state that’s authorized by the Life Insurance Settlement Association, be sure to check out the organization’s Search page.
Also, considering the amount of money potentially on the line, you’ll also want to speak with your financial planner or advisor, who can provide professional advice about whether or not a life settlement is in your best interests.
Did you sell your life insurance policy to Coventry Direct? How did the process go? Do you feel like you got a fair deal? Tell us all about it by writing a review below!