Life Settlements

Life Settlements offer a unique opportunity to both the policy owner and the Advisor.

A Life Settlement is the sale on an existing life insurance policy on a person with a shortened life expectancy of usually between 2 – 15 years (age 65+); to an institutional investor for an amount greater than the cash surrender value but less than the death benefit. As circumstances change, the ability to obtain cash from the sale of a life insurance policy can be extremely valuable. The majority of Life Settlement transactions are entered into for the purpose of purchasing other insurance or financial products. Life Settlement proceeds are unrestricted and can be used to fulfill a wide range of financial and estate planning objectives for your client, with the settlement amount determined by policy parameters, age and health of the insured.

Situation - Existing policy is in place where the Insured has one or more of the following situations occur:

  1. Underperforming policy requiring additional premiums
  2. Term policy period expiring
  3. Retirement/sale of business where there is a key executive policy in place
  4. Divorce or bankruptcy
  5. Death of spouse or beneficiary
  6. Estate size growth or reduction
  7. Tax Reform
  8. Deterioration of health
  9. Considering a 1035 exchange
  10. Corporate restructuring
  11. Policy Donation desires

Case Studies:

  1. Estate planning
    Male age 77 and Female age 76
    $5,000,000 Survivorship UL
    • Policy underperforming
    • Updated planning only need $2,000,000
    • $285,000 CSV
    • If 1035 exchange, projected premiums = $84,000/year
    • Life Settlement Solution
    • Net offer = $700,000
    • Use as lump sum in new policy
    • Projected premiums = $53,000/yr for $31,000/yr savings
  2. Personal needs
    Female age 81
    $1,400,000 UL
    • Husband deceased
    • Children financially successful
    • No longer wants policy
    • CSV = $46,000
    • Desires monthly income stream
    • Life Settlement Solution
    • Settlement amount of $327,000
    • Proceeds invested into immediate Annuity
  3. Term Policy
    Male age 73
    $1,500,000 Term Policy
    • Guaranteed term rate is expiring in less than a year
    • Client is going to let the policy lapse
    • Life Settlement Solution
    • Settlement amount of $127,500
    • Agent converts policy into UL to complete sale

Benefits

  1. Immediate Capital
  2. Relief of premium expense
  3. Maximizes asset recovery
  4. Alternative to surrendering or lapsing a policy

Considerations:

  1. Every state has different regulation in regards licensing and other requirements
  2. Proceeds from a life settlement can be subject to taxes
  3. Typical timeline is 4 – 6 months