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1) Why Should Your Client Consider Selling His Policy?
2) What a life settlement is not?
3) What are the benefits to policy holders?
4) Who are ideal candidates for a life settlement?
5) What is “non-recourse premium financing", and is it related to life settlements?
1) Why Should Your Client Consider Selling His Policy?
Do you have a client that is over 65, has $250k+ in current life insurance and is considering surrendering it for CSV or letting the policy lapse? If your answer is yes, you should look at the life settlement market for a solution. AAA Settlements is working with close to 50 institutional funders who are interested in buying existing life insurance policies from your clients. This service doesn’t cost your client anything. And we serve as a representative of your client in accepting bids from competing institutions. Quite simply, the appeal for your clients who own an unwanted or unneeded life insurance policy is easy. They will receive a one time, lump-sum cash payment that's usually more than the cash surrender value of the policy, and they will be relieved of making all future premium payments on the policy.
- Through recent estate/tax planning, their estate has been reduced/tax burden has been lessoned.
- The performance of an existing policy has not met the original goals, such as policies that are tied to the stock market or a decreased interest rate credit by the clients insurance company.
- The yearly premium payment on the policy has become too expensive and unaffordable.
- The beneficiary has died, divorced, or just doesn't need the money.
- A key person has retired or left a company or a buy-sell agreement isn't needed.
- A convertible term policy is about to expire. Instead of letting it lapse, we can study it & see how much it's worth. if the policy is convertible then the client should convert and sell the policy for a lump sum.
The sale of an insured's existing in-force life insurance policy to a third party in exchange for an immediate lump sum cash payment, is called a life settlement, an updated version of a viatical settlement. The sale price is less than the face value of the policy, but it is usually higher than the policy's CSV (cash surrender value).
Life insurance provides financial solutions to meet various business and family needs, how ever things can change: loans are repaid, key executives retire, estates become smaller, businesses are sold, and estate taxes are reduced or no longer exist. Sometimes, dropping interest rates make the policy too expensive to keep.
Until a few years ago, the only option for liquidating an in-force yet underperforming or unneeded life insurance policy was to surrender it, let it lapse, or sell it back to the original insurer for its accumulated CSV. Thanks to an increasingly competitive secondary market, life insurance is no longer treated only as a death benefit. Just like stocks, bonds, real estate, and other investment holdings, life insurance has become a fully evolved asset with a fair market value, an asset which can be sold by its owner at the highest market price.
Naturally, upon the sale of one's insurance policy to a third party, the owner of the policy is relieved from the financial obligation to make the expensive premium payments due the carrier on an unwanted policy.
2) What a life settlement is not?
The market for insurance has seen some unique opportunities arrive in a very short period of time. AAA Settlements is strictly focusing on life settlements. However, our transactions are frequently mixed with other settlement opportunities that are being mentioned. One of it is called wet paper settlements.
Here is how “wet settlements” is explained in an article
Wet Payer: Giving the Secondary Market For Life Insurance a Bad Name
WRITTEN By: Robert M. Heinrich, J.D. and Bradley K. Feldman, J.D.
The most basic definition of Wet Paper is the purchase of a life insurance policy with the intent to sell that newly-issued policy to an investor prior to the expiration of the policy’s contestable period.
The policy itself insures the life of a senior citizen ordinarily with a high net worth. The funds used to bind the policy are lent to the primary owner by the investor who is about to become the secondary owner. The amount of the sale price typically ranges from 3- 4 percent of the death benefit.
The name “Wet Paper” came about because the proverbial ink on the life insurance policies was still wet at the point when they were sold off to the investors (often times within 3-4 days of their issuance).
The following is a “ WET PAPER “ example, ABC Investor, Inc. approaches Mr. Moneybags, a 78-year old retired entrepreneur. Mr. Moneybags has a net worth of $15 million and owns only a $1 million life insurance policy on his own life. ABC Investor, Inc. explains the Wet Paper concept and convinces Mr. Moneybags that he could make a quick buck.
Mr. Moneybags is taken through the life insurance underwriting process and learns that a carrier will issue a $3 million Universal Life policy covering his life. The annual premium for this policy will cost $200,000.
ABC Investor, Inc. subsequently enters a contract with Mr. Moneybags whereby ABC Investor, Inc. agrees to lend Mr. Moneybags $200,000 (the annual premium cost) to bind the policy, and in exchange, Mr. Moneybags agrees to change the owner and beneficiary of the life insurance policy within two weeks after the policy is issued. Once the changes take place, ABC Investor, Inc. agrees to pay Mr. Moneybags $300,000 as Mr. Moneybags’ consideration in entering into the Wet Paper sale. However, Mr. Moneybags only receives $100,000 because he had to pay ABC Investor, Inc. for the $200,000 loan.
Most players in the secondary life insurance marketplace dislike Wet Paper sales. The most well recognized voice in the Life Insurance Settlement marketplace, The Life Insurance Settlement Association (the LISA), has stated the following The LISA and its members have adopted a strong position against transactions revolving the sale of newly issued life insurance policies that were purchased with the sole intent to sell. Without a showing of au unanticipated change in the health and/or financial condition of the owner of the policy, the members of the LISA will not enter into A Viatical settlement and/or life settlement transactions within two years of the issue date of a life insurance policy, or such other period of time to be determined by law, riot to exceed the contestable period.
AAA Life Settlements team of professionals understands the life settlement marketplace and how to maximize client offers. We created a large network of institutional investors who bid against each other, similar to an auction process, thus ensuring the client the highest possible offer. Advisors entrust us with their clients and have done so for over 6 years.
3) What are the benefits to policy holders?
Life settlements have become a very important factor in the estate planning process for seniors. Prior to the life settlement Industry, if a senior owned a policy that was no longer wanted, needed or affordable, there was no option but to lapse, cancel, or surrender the policy back to the carrier for the cash surrender value. Life settlements allow qualified policy owners to liquidate a policy for an amount much higher than the cash surrender value. Then these seniors can take advantage of important financial opportunities using the proceeds of an unwanted, unaffordable or obsolete life insurance policy.
Today, with the advancement of life settlements as a mainstream financial product, life Insurance companies now face competition for the surrendered policies that they once monopolized. The life settlement Industry has created a competitive secondary market for life insurance policies. Consumers are now in the driver's seat, free to sell their policies in an open market for the highest available price, well above the cash surrender value offered by insurance companies.
BENEFITS TO POLICY OWNERS:
- Relief of monthly premium expenses
- Additional funds to supplement retirement income
- Higher cash payout than the cash surrender value
- Funds to seek treatments not covered by health insurance
- Generate profit from a non-performing & often worthless asset
- Alternative funding for LTC policies, annuities or other investments
- Fund new, more cost-effective life insurance like a survivorship policy
- Provide cash gifts to family members
- Provide funds for charitable giving or to establish a charitable remainder trust
- Removing a policy from an estate due to a reduction in size or projected tax liability
- Receive a considerable amount above the surrender cash value of the policy
4) Who are ideal candidates for a life settlement?
Candidates for life settlement include males over the age of 69, or females over the age of 72 who have an in-force insurance policy with a minimum face amount of $250,000.00 and is in need of immediate cash from the sale of his/her insurance policy which they owned for at least two years. Usually the life insurance policy must be issued from a carrier rated “B+” or better by AM Best or S&P.
Owners of almost every type of insurance policy are eligible to have their insurance policy settled. Rather than just selling unwanted, obsolete, or unneeded life insurance policies, an insured may elect to use the sale proceeds to purchase coverage with lower premiums or no premiums at all.
5) What is “non-recourse premium financing", and is it related to life settlements?
Some call it "non-recourse premium financing" and others will call it IOLI (investors owned life insurance). This strategy is employed with a healthy senior who takes out a large life insurance policy, usually a minimum of 5,000,000 in insurance coverage. a non-recourse loan (meaning no other collateral is backing the loan besides the policy) is made to cover premium payments and at the end of a two year contestability period the senior can either keep the policy and pay back the loan plus interest, or they have an option to sell the policy in the secondary market and payoff the loan by the proceeds of the sale. These deals are under tight scrutiny by insurance carriers for several reasons including, questionable insurable interest, and reducing overall policy lapse ratio yields and they are harder to get approved these days. Many carriers now require a statement on the insurance application certifying coverage is not being taken for investment purposes. New York state has deemed some type contracts "invalid" and other states are following suit and as a result, many believe this premium financing market place is actually shrinking these days. however if someone has financed a policy a few years ago and needs to pay back the loan now, one should make sure getting the fair market value on his policy and pay back the loan from that proceeds rather then letting the financer take away the policy for loan payoff.
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New York, NY 10001
T. 212.710.5608
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Email:
sales@aaasettlements.com |
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