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January 01, 2010 at 02:00 AM
If clients want to get a settlement for their life insurance policies, or invest in securitization of life insurance settlements, what should you tell them?
Jeff Feldman, of Rochester Financial Services in Rochester, New York, has as clients an elderly couple who in the 1990s had purchased a whole life joint survivor policy with a death benefit of $500,000. In 2007, now in their early eighties, the couple debated the wisdom of hanging onto the policy, which cost them $15,000 annually in premiums that were scheduled to increase to $20,000.
So they asked Feldman whether it might be more cost effective to do something else, rather than hang onto it. Feldman checked on the policy’s cash value, which was $75,000, and then calculated the break-even point for their heirs. If the couple continued to pay premiums for another 10-12 years, at any point up till then it would still pay for them to keep the policy in force. If, however, they lived beyond that point, they would have spent more in premiums than the policy would pay–and given their health, that was a possibility. He also analyzed the policy versus what they could get if they bought a new policy.
“Their 15-year-old policy wasn’t the best,” Feldman says, adding that if they had wanted to keep a policy in force for estate planning reasons, “I would [have] recommend[ed] they cancel that one and get a new one. They could do better shopping for a new policy even at that age.”
Feldman suggested they might be able to get more than the cash value if they sold the policy to investors rather than surrendering it, and they got in touch with the agent who had originally sold them the policy. He helped them find a buyer, and after “upwards of a year,” says Feldman, from the time they first considered the idea, the deal was completed. The couple netted $105,000 after all the expenses involved in selling the policy were paid.
