As the secondary market for life insurance surpasses a decade of steady expansion, the number of insurance and professional advisors engaging in life settlement transaction continues to multiply. In addition, we are seeing more wealth management firms, CPAs, and attorneys embracing the product due to its utility in the estate-planning process for high net-worth clients.
  Sample Lifetime Settlement Case:
  Insurance Trust owns a first-to-die policy on husband (age 75) and wife (age 74) for $1,500,000. They have not paid premiums on the policy for several years nor do they intend to pay premiums in the future. Based on current rates, the policy will lapse without value in two years. The current cash surrender value is about $150,000. Because the policy is a universal life policy there is not a reduced paid-up option. Therefore, the only two options outside of a lifetime settlement are to leave the policy in force and let the policy lapse in two years or surrender it for $150,000 cash value. Neither option was attractive to the couple or the trustee. They wanted greater value for the premiums that they had paid in the past.

Using a lifetime settlement, we were able to secure a cash offer of $250,000 for the policy on the secondary market. Because the $250,000 was less than the policy cost basis, no taxes were due on the sale. In addition, the wife was in good health so we were able to underwrite her on a Preferred Non-Tobacco basis for a new “guaranteed forever” policy. Using the $250,000 cash settlement, the trust was able to pay a single premium on a new policy on the wife for $800,000 that is guaranteed forever with no additional premiums. The insured’s and the trustee were both thrilled with this solution.