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The Life Insurance Settlement Association is about to meet in New York for the ninth annual Life Settlement Institutional Investor Conference. Here longtime ThinkAdvisor Life/Health bloggers Robin S. Weinberger and Peter N. Katz give readers a peek at what’s really going into the policy portfolios.
Unfortunately, far too often, policies are lapsed or surrendered without investigating the possibility of a life settlement.
Here are five recent cases that optimized the value of policies that otherwise would have been terminated with little or no value:
A 77-year-old male owned three universal life policies that were distributed to him from a pension plan when he retired, but he could no longer afford the premiums on them. He was able to sell two of the policies, with face amounts totaling $761,200 for $284,328. The sale proceeds allowed him to both improve his retirement income and maintain the third policy of $411,047.
A male age 74 and female age 73 had purchased a $1.5 survivorship UL policy to pay estate taxes. With the dramatic increase in the estate tax exclusion, they no longer had a federal estate tax liability and this policy was no longer necessary. Both had some health issues and they were able to sell the policy for $400,000.
A 65-year-old male owned $15 million of term insurance with its conversion period about to end. He could not afford to convert all the insurance. He sold $10 million of converted term in a life settlement transaction for $90,000. He then used the money towards the conversion of the remaining $5 million that he kept for himself.
A single 59-year-old male, who owned a $250,000 universal life policy, was newly diagnosed with ALS. With a life expectancy of about 8 years, he knew that he was facing significant expenditures to cope with his illness. The policy was sold for $135,000 and a portion of the proceeds was used to make his home handicap accessible.
A trust owned an $8.4 million policy for estate taxes on a male aged 83. The policy was dramatically underfunded and would require unaffordable premiums to keep the policy going. A life settlement netted $2,450,000. The proceeds were used to buy a new survivorship policy for the same $8.4 million face and using the life settlement proceeds the future premium obligation became affordable. Although sell and replace life settlement strategies generally do not work, this one type of scenario, selling and replacing a single life policy with survivorship or a single life policy on a younger, healthier spouse, may make sense in the appropriate situation.
As you can see from the above examples, a life settlement can significantly improve a client’s financial picture as an alternative to lapse or surrender. If you suspect that a life settlement might work, you owe it to your client to investigate the possibility. It can’t hurt to try – it can only hurt not to.
Robin S. Weinberger, CLU, ChFC, CLTC, has served as general agent and director of national accounts for Connecticut Mutual and vice president of marketing for Sun Life of Canada. She is also an active personal producer. Since 2003, Weinberger has specialized in life settlement brokerage services and is currently the director of national accounts for Life Insurance Settlements Inc. She can be reached at [email protected] or (617) 451-3343.
Peter N. Katz, J.D., CLU, ChFC, has spent more than 30 years in the life insurance and financial services industry as an advanced markets attorney and in product development. He is currently a life settlement broker and co-director of national accounts with Life Insurance Settlements Inc., as well as a consultant specializing in life insurance advanced sales illustrations. He can be reached at [email protected] or (860) 673-3642.