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 Posted: Fri Oct 17, 2008 8:37 pm Post subject: senior life settlements |
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Well I've been out of the office and haven't been able to check out the forum lately. It seems that there was a lot of discussion while I was gone and a few of you brought up very good points. I'd like one more time make this clear as possible. Please read this carefully.
A life settlement is an option for a client that is looking to surrender their policy or simply let it lapse. Institutional capital has been attracted to this alternative asset class because the purchase of a life insurance policy can provide a client with an excess of 2-3 times their cash-surrender-value build up in the policy while providing the investor with an 10-12% annual rate of return.
The current beneficiary(s) of each policy are required to sign the contracts stating that they are aware and acceptable of the life settlement transaction. If a beneficiary is unwilling to sign the contracts then the life settlement transaction is not possible. The money received in the life settlement can be used in any manner by the seller. The owner of the policy could use the life settlement proceeds to fund a new paid up policy for the previous beneficiary(s). They could also give the money directly to the beneficiary(s), or perhaps invest the settlement money in a better investment vehicle that will yield more money for the future beneficiary(s) down the road.
Milestone was the first life settlement provider to require full-disclosure on all transactions, making each settlement completely transparent. The owner and beneficiary(s) must sign off on the contracts which disclose each agent/broker's commission on the transaction. A life settlement may not be the best scenario for every client, however in many cases it gives the client more money that the insurance carrier is willing to.
We have a solid reputation in our industry and I would love to discuss this in further detail if any agents/brokers have received inquiries about the option of a life settlement from their client(s). With the credit crisis upon us, many senior clients are looking for ANY options as the financial market gets progressively worse. |
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DerekW
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| Posted: Fri Oct 17, 2008 8:41 pm Post subject: |
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| Quote: | | They could also give the money directly to the beneficiary(s) |
We all know the proceeds from Life Insurance is tax free. Would this transaction also be tax free?
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LifeIsGood
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| Posted: Sat Oct 18, 2008 1:12 am Post subject: |
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Well this part makes me feel A LOT better about it... | Quote: | | The current beneficiary(s) of each policy are required to sign the contracts stating that they are aware and acceptable of the life settlement transaction. If a beneficiary is unwilling to sign the contracts then the life settlement transaction is not possible |
I wish you'd not call it a commission, it is after all the the full death benefit you're collecting right? 
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Lori
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| Posted: Sat Oct 18, 2008 12:47 pm Post subject: |
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| I like that part myself...I guess it at least gives a little protection especially for an ederly person...keeps them from being taken advantage of. |
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fireyone
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| Posted: Mon Oct 20, 2008 1:38 pm Post subject: |
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| Actually that is not completely correct Lori. We work with institutional funds here. Our investors technically purchase the policy and receive the rest of the death benefit of the policy. However it is not the "full death benefit" because the agent (and broker if one is involved) receive a commission from that death benefit. Our investors then in turn pay Milestone a small portion of the death benefit for our services. |
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DerekW
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| Posted: Mon Oct 20, 2008 2:58 pm Post subject: |
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Three typical examples of the characteristics of a Life Settlement Transaction are given below:
Universal Life Insurance
Male Age: 79
Policy Face Amount: $3.5 Million
Cash Value: $185,000
Life Settlement Payment: $970,000
Universal Life Insurance
Female Age: 86
Policy Face Amount: $1 Million
Cash Value: $45,000
Life Settlement Payment: $547,000
Whole Life Insurance
Male Age: 75
Policy Face Amount: $1.5 Million
Cash Value: $72,000
Life Settlement Payment: $455,000
Just some examples of how these life settlements payout. To me the investor would really be making some money once the person dies. Sure the cash value for someone cashing out there own policy to a life settlement may be appealing to whoever has the policy but in the long run who really makes out? |
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fireyone
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| Posted: Mon Oct 20, 2008 4:48 pm Post subject: |
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In the long run ALL PARTIES involved make out. The client who was going to take the cash surrender value is offered (as you have conveniently pointed out for me) a lump sum payment that far exceeds the cash surrender value offered by the insurance carrier. This provides the client with the money they need now. The investor will receive the death benefit as a return on the monthly premiums they uphold. The seller's representatives are able to take a commission out of the gross purchase price for their efforts, which will be disclosed on the contracts that the seller and beneficiaries sign. The life settlement provider then receives a set transaction fee from the investor, which is also disclosed in the transaction making all parties commission transparent.
The client, their representatives, the life settlement provider, and the investors ALL make out.
Let's use the first example that you provided us. So a client has a $3.5 million UL policy, but can no longer afford to pay their premiums. Once again, they can....
A.) let it lapse and receive nothing.
B.) take the cash surrender value of $185,000.
C.) take the life settlement payment of $970,000.
Keeping in mind your fiduciary duty to do what is best for your client, What would you recommend they do?
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DerekW
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| Posted: Tue Oct 21, 2008 1:03 am Post subject: |
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| Quote: | | What would you recommend they do? |
Tell them to have a meeting with their loved ones, see if they can pay the premiums until the owner dies, and they collect the benefit...if the owner needs cash depending on how much if the family can't or doesn't want to help out then I'd be for the life settlement offer.
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Lori
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| Posted: Tue Oct 21, 2008 1:53 am Post subject: |
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Derek forgot:
D. Take C and the Life Settlement company makes 2.53 million dollars.
I'm sith you Lori - let the family pay the premiums. Insurance companyies don't care where the check comes from.
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LifeIsGood
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| Posted: Tue Oct 21, 2008 10:47 am Post subject: |
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| Thank you...my point exactly.... |
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fireyone
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| Posted: Wed Oct 22, 2008 1:28 pm Post subject: Keyword is option |
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I agree with you guys as well. I mean...if they family members can afford to continue the premiums that would definitely be in the best interest of the insured and their loved ones to take that route. I think anybody with common sense would figure to attempt that before they explore the life settlement option. Again, I say option because it is one of multiple choices. One of many choices that the policy owner and the beneficiaries of their policy make together. They might discuss this option when the policy owner has to approach the beneficiaries about signing the contracts.
Once again, this option is not best for everyone. However, it often serves as the best possible option for many. |
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DerekW
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| Posted: Wed Oct 22, 2008 3:42 pm Post subject: |
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| I get that part. I just think these companies who mbuy life settlements sure get their cake and get to eat it too. I feel for the person who doesn't have family to help them out. When I think of all that cash filling someone's pocket who probaly doesn't need it I think about all the decent charities and research facilities out there that could put that money to good use and for a good cause. |
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fireyone
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| Posted: Wed Oct 22, 2008 10:41 pm Post subject: |
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My whole thing about this is the HUGE opportunity for the wrong people to get involved in this and really put it to the insured/policy owner...NOT YOU DEREK, I'm sure you'd agree that opportunity exsists, and we all know that greed has taken over the world!
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"Never, never be afraid to do what's right, especially if the well being of a person or animal is at stake. Society's punishments are small compared to the wounds we inflict on our soul when we look the other way." Martin Luther King Jr. |
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Lori
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| Posted: Fri Oct 24, 2008 12:05 am Post subject: |
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| Wonderful post and I agree with you completely.Really does sound like a reverse mortgage..I imagine there has got to be fees just like rev. mortgages too. Some of those places charge fees upwards of $14,000 for an elderly person to borrow $90,000 on a $300,000 home. I don't know but I just think there is just too much for someone to take advantage of. |
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fireyone
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| Posted: Fri Oct 24, 2008 12:47 am Post subject: |
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Looks/sounds like a receipt for swindling the old folks to me...I hope (although doubt) that it's closely monitored by some authority.
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"Never, never be afraid to do what's right, especially if the well being of a person or animal is at stake. Society's punishments are small compared to the wounds we inflict on our soul when we look the other way." Martin Luther King Jr. |
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Lori
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