Life Settlement Case Study
Coverage No Longer Needed for Original Purposes
Client and Opportunity
- Two Males – Ages 70 & 61. Business owner partners
- Health has declined since issued Standard, 5 years prior
- Purpose was Split Dollar to fund the Buy-Sell Obligation
- Business was sold, and Split Dollar Agreement dissolved
- No longer needed coverage for Buy-Sell Obligation
- Had existing coverage for personal Estate Planning already in force
Current Policies:
- Guaranteed No-Lapse UL
- Unisex Rates
- DB Option 3 (Return of Premium)
- Death Benefit M70: $2,000,000
- Premium: $75,000 – full pay
- Surrender Value: $172,000
- Death Benefit M61: $3,500,00
- Premium: $71,000
- Surrender Value: $210,000
The Assessment and Approach
Assess the current situation and explore best option to maximize policy value back to Policyowner. Do they surrender for Cash Value, or explore the secondary market?
The Recommendation
Sell the policies on the secondary market. Policies had excellent value due to cost of insurance charges (unisex rates) and policies were issued at Standard Nontobacco rates via Table Reduction Program. Of note – would have been Table 2-3.
After exploring several pricing opportunities with various potential buyers, an offer was accepted, and the closing process initiated.
The Result
- Net Offer to Policyowner 1 (Male 70): $624,000
- 262% improvement over Cash Surrender Value
- Net Offer to Policyowner 2 (Male 61): $562,000
- 168% improvement over Cash Surrender Value
