FROM WICKIPEDIA - A life settlement is a financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.
Life settlements are an important development in that they have opened a secondary market for life insurance in which policy owners can access fair market value for their policies, rather than accepting the lower cash surrender value from the issuing life insurance company.
Generally speaking, life settlements are an option for high-net-worth policy owners age 65 or older. Independent estimates report that among this group, 20% of policies have a market value that exceeds the cash value offered by the carrier. And while many policyowners are unfamiliar with life settlements until a financial professional mentions the option to them, the concept has gained attention from high-profile proponents such as Warren Buffett, former U.S. Representative Bill Gradison, and numerous media sources including The Wall Street Journal, Time Magazine, Business Week and The Economist. A growing number of experts now believe that informing clients about offering life settlements should fall under the fiduciary duty of a financial adviser.
CASE STUDIES AND TESTIMONIALS
Age/Sex: 78/Female Policy Type: Universal Life Face Amount: $3,000,000 Cash Value: $18,000 Life Settlement: $597,000 "I received a free appraisal to learn the current market value of my policy. I didn’t realize it had significant value while I was still living. When I retired, it became difficult to keep paying premiums on a policy..... I was able to receive $597,000 on my $3 million life insurance policy. This was the best option for me because the cash value was only $18,000. I was able to use part of the settlement amount for more appropriate coverage in a Survivorship policy." ________________________________________________
Age/Sex: 75/Male Policy Type: Key-Man Face Amount: $5,000,000 Cash Value: $0 Life Settlement: $900,000 "... I was able to turn my term life insurance policy into cash while my personal information and details of the transaction would be kept confidential and never sold or disclosed to anyone. ... Since my term insurance policy didn’t offer a cash surrender option, I was glad to be able to pay off all of my debts so my family wouldn’t have to be responsible." ________________________________________________
FROM USA TODAY " 1. 84-year-old …. bought a $3 million policy years ago to pay inheritance taxes on his estate. The falling stock market cut the estate's value in half. The owner wanted to save $55,000 a year in premiums by letting half the policy expire but found investors willing to pay $350,000 and take over the premiums. … 2. A $1 million term policy on a senior partner …the premium had gradually increased to $17,000 a year … the firm was able to find an identical policy for $12,000 a year, even though the partner's health had taken a turn for the worse. The firm sold the old policy for $53,000 …" ________________________________________________
Age/Sex: 68/Male Policy Type: Key-Man Face Amount: $2,000,000 Cash Value: $289,000 Life Settlement: $489,000 ________________________________________________ Purchase New Policy for Spouse Profile : Male age 74 in moderate health. Type of Insurance: Universal Life Death Benefit: $1,500,000 Premium: $42,000/Annually Surrender Value: $38,000 Life Settlement: $225,000 This policy was maintained for estate purposes but the premiums that were supposed to “vanish” by this time hadn't for reasons outside his control. Before he surrendered the policy for the Cash Surrender Value, his advisor recommended that he learn what the fair market value was for his policy. The advisor explained that just like other business markets, a new market has developed in the financial services industry, and there was a simple process to assess his current life insurance. The policy was sold for $225,000, creating an additional $187,000 that he would not have received if he had not participated in this non-binding policy appraisal. The policy owner was able to use the proceeds to fund the remaining policies he had in force and purchase a new $1,000,000 policy on his wife for their heirs. ________________________________________________ Policy Was Underperforming Profile : Female age 82 and Male age 83 without any substantial health issues. Type of Insurance: Joint Survivorship. Death Benefit: $6,000,000 Premium: $145,000/Yr. Surrender Value: $105,000 Life Settlement: $755,000 Policy was over funded at first, but the policy is now running out of cash value to maintain the policy for the upcoming year. The advisor understands the clients' need for insurances, and suggested a life settlement. Because of the clients' current financial plan, the cash settlement will be reallocated to another area of their wealth management plan. Client sold the policy for $755,000, creating an additional $650,000 for the families charitable planning. The client referred other families that had similar circumstances and lacked the strategy to develop their own charitable giving plan. Gain: Policy owner was able to use the cash settlement to provide funds for charitable giving, and to establish a charitable remainder trust for their family. ________________________________________________ Business Owner is Retiring and Selling the Company Profile : Male age 69 with health challenges. Type of Insurance: Term that is still convertible. Death Benefit: $11,000,000 Premium: $365,000/Yr. Surrender Value: $0 Life Settlement: $1,100,000 The business owner was retiring due to his decline of health and was recommended to lapse his Key-Person Term policy by his CFO. The client's advisor told him that there was even value in the secondary market for term policies that were not beyond the conversion period. He had his policy underwritten for a life settlement. Client sold the policy for $1,100,000. This was found money to the client and he purchased an additional $15,000,000 of coverage that was funded by his cash settlement. Gain: Policy owner was able to take a seemingly worthless policy that had zero value and turn it into an asset that he could have appraised and sold for a cash settlement. ________________________________________________
Age/Sex: 74/Female Policy Type: Survivorship Face Amount: $1,000,000 Cash Value: $67,000 Life Settlement: $204,000 "I’m a 74-year widow without any living children. I no longer had a need for my policy and I wanted to take a trip to Alaska. ... My alternative was to surrender the policy for its cash surrender value of $67,000. I'm now covered with LT care and leaving on my trip next week." ________________________________________________
Age/Sex: 76/Male Face Amount: $684,000 Cash Value: $9,000 Life Settlement: $210,000 I considered lapsing my life insurance policy for the cash value. My policy was worth $684,000 and only had about $9,000 in cash value. I accepted the highest offer ... ________________________________________________
Disclaimer: Life Settlement amounts are based on numerous factors including but not limited to; Insured age, Insured Health, State Regulations, Future Premiums, Policy Size and other criteria. Examples are solely intended to demonstrate the potential outcome of a Life Settlement and are not an indication of future, past, or present results. Everyone should consult with qualified professionals prior to entering into any transaction. e-mail: info@LifeSettlementOfAmerica.comClick here to go to HOME.
