Here are the most common, or the most Frequently Asked Questions regarding these products.
Q. What is a Life Settlement?
A. Up until recently, if you had a life insurance policy in force, and wanted to terminate it, stop premiums, and redeem any cash value, you would simply surrender the contact to the insurance company, and take whatever cash value there is. Now you have a choice! There are institutional investors who may offer you a “value” that is greater than the “cash value” the insurance company is offering. If you come to ABS with a potential Life Settlement, we will put the policy out to “auction”, by providing the provisions of the policy along with medical and life expectancy studies, and take “bids” on the policy from all institutional money sources available in the U.S. and abroad. We will then give to you, the agent, the best offers that we received so you may present them to your client. The reason life settlements are receiving so much attention, is because these offers may be substantially greater than the cash value being offered by the insurance company.
Q. Isn’t my client losing money by selling his policy for less than the death benefit? Am I really benefiting him?
A. The question should not be is your client losing money by selling his or her policy for less than death benefit, but is he gaining by receiving greater than the cash value offered by the issuing company, and there is a need or desire to sell the life policy. The Life Settlement industry does not exist because it is trying to get insured’s to drop their policies before death, but it exists because there is more value and alternatives being given to insured’s, who wish to exercise their right to sell, or surrender their life insurance policies. We will later give a few examples to illustrate these points.
Q. Aren’t these products the same as Viaticals from 10 years ago?
A. No they are not. A Viatical Settlement by definition was an offer to buy someone’s life insurance policy when an individual has a 24 month or less life expectancy. In addition, these transactions were initially funded by individual investors, not institutional investors. Needless to say, these viatical settlements often had a negative connotation. Life Settlements are now mostly funded by institutional Wall Street money, such as; Investment banks, hedge funds, and mutual funds. Currently an exchange is being developed in New York to handle the transactions between the sellers of life insurance polices and the funders looking to purchase these polices.
Q. My Broker-Dealer will not allow me to sell or offer Life Settlements to my clients. What should I do?
A. There is one thing that many attorney generals, insurance companies and consumer advocate groups always look for: Did the interest of the client come first? The Consumer Always Comes First, that is the golden rule!!! If you are able to negotiate for your client a purchase of his or her life insurance policy for $421,000, but the cash value inside policy, and the price the insurance company is willing to pay, is only $250,000……what is the right thing to do? The needs of the client must come first!! The right thing to do is offer to your client the settlement offer of $421,000, period! Keep this in mind, if you don’t offer this to your client, another advisor will. How will you then look to your client? Also keep in mind that many states do not require an insurance license to transact these sales. This means that there are many “Financial Advisors” who will make your clients aware of these transactions. It could even be your client’s attorney or accountant that will offer these settlements.
Case Study #1
We had a client, male 75, who had in force a $1,000,000 life insurance buy-sell policy on a partner. The business disbanded, and the client was faced with a few choices. Keep paying the premiums on his ex-partner and wait for him to pass on, sell the policy for cash value to the insurance company for $250,000, or try to “settle” the life insurance policy on the open market. We were able to negotiate with a specific funder, a $451,000 immediate cash for our client! Needless to say, our client took the offer.
Case Study #2
A wealthy attorney had a wife, age 54, who was diagnosed with a terminal illness, life expectancy of 4 -6 years. She had a life policy for $2,000,000 with a cash value of $197,500. The decision was made to settle the policy. We were able to put the policy out for bid, and received an offer of $1,200,000. The client decided to take the cash now. The reasons? Both spouses stopped working and took a world cruise with the entire family for 6 months!!! They decided it would be better to receive the money now, spend time with their family together and have lasting memories, as opposed to getting a death benefit, years later.
These are two examples of how we have been able to help our agents “settle” their clients’ life insurance polices. Generally you should expect life expectancies of your clients to be 15 years or less to make the transaction work. To contact us with any possible cases, please call 1-888-227-3131 X-500
