What
is a Life Settlement?
A life settlement is the sale of a life insurance policy for a cash
settlement in excess of the current cash surrender value. The average
life settlement ranges from two to five times the surrender value.
This creates tremendous economic leverage for the owner and its
beneficiaries.
Case
examples:
1. $250,000 UL policy for a 55-year-old male with significant health
issues. Received $80,000 life
settlment.
Used proceeds to purchase an investment product for retirement.
2. $21,000,000.00 Universal Life Policy on a 76 year-old-female,
cash value $1,375,000.00. The client received
a $5,145,000.00 life settlement. The client used the proceeds to
purchase a life
policy.
3. $10,000,000.00 Universal Life Policy on an 81-year-old male,
cash surrender value was
$531,458.00. The
client received a $1,890,000.00 life settlement. The client used
the proceeds
to purchase another investment
product.
4. $2,000,000.00 Term Policy on a 68 year-old male, zero cash value.
The client received a
$250,000.00 life settlement.
The client used the proceeds to purchase an annuity.
Who
is Eligible and What Types of Policies Qualify?
To qualify you must have an in force life policy and meet one of
the three following criteria:
-
21 years of age or older with a life-threatening illness.
-
65 years of age or older with serious health problems.
-
80 years of age or older and in reasonable health.
All types
of policies are available for appraisal: Universal, Term, Whole, Variable,
Joint and Group. The face value of policies ranges from $100,000.00
to unlimited.
Changing Circumstances
A life settlement is advantageous to the policy owner and its beneficiaries
when:
-
Business owned key-person policy is no longer necessary because
of the sale of a company, retirement, or departure from the company
-
Change in estate size and owner is over insured for estate-tax
purposes
-
Need for liquidity
-
The purpose of the policy was to protect a young family and it
is no longer needed
-
Premiums have become a burden and they are no longer economically
feasible
-
The policy is no longer consistent with the purpose of the trust
within which it resides
A policyholder
or trustee can anticipate the policy appraisal to be completed in
six weeks. Because the appraisal process is free and non-binding,
there is no downside. Regardless of the appraisal value of the policy,
the policy owner will benefit from the true assessment of an unrealized
asset. Who
Becomes the Policy Owner?
Since the entrance of sophisticated capital into the Life Settlement
market, there have been over two-dozen Providers purchasing policies.
Provider companies represent investors such as banks, reinsurance
companies, and private entities. Each Provider has qualifications
or parameters they look for in reviewing a policy. If the policy
does not fall within their parameters, the policy is simply declined.
Brokerage companies work with licensed Providers thereby providing
one point of contact to the entire market. This creates competition
between the Provider companies, resulting in a higher offer for
the client.
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