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Life Settlements Are An Effective Estate Planning Tool


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Financial advisors now have a new educational tool to help senior clients understand the benefit of life settlements for unwanted policies.

Published in: Economy & Finance
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Life Settlements Are An Effective Estate Planning Tool

  1. 1. 5 Life Settlement Scenarios That Make Sense to Seniors “An informed senior is an engaged client.” This presentation is an educational resource for professional advisors brought to you by:
  2. 2. We encourage advisors to make this informative presentation part of your “client tool kit.” • Host a coffee for senior clients in your office and share these “5 sensible solutions.” • Conduct a workshop to educate professional colleagues on why a life settlement makes sense for clients with policies that are no longer needed, wanted, or affordable.
  3. 3. What is Life Settlement? • A life settlement is the sale of an insurance policy to an institutional investor for more than its cash surrender value, but less than its net death benefit. • A typical life settlement involves a $1 mil. policy on a senior in their 70s with a life expectancy of 12 years. (Source: A.M. Best) • Life settlements offer seniors a viable solution for unneeded or unwanted life insurance policies, versus allowing policies to lapse.
  4. 4. A. M. Best, a US-based rating agency for the insurance industry, summarizes the most common reasons to sell a policy.
  5. 5. Why Educate Senior Clients About Life Settlements? 1. Because 80% of policies are allowed to lapse.* 2. Because 82% of seniors are not aware that a life settlement is a viable alternative to lapse.** 3. Because it’s the right thing to do for your valued clients who depend on you for counsel. *Source: **Source: ICR Market Research, September 2013
  6. 6. SCENARIO #1 Financing Medical or Long-Term Care Expenses for Policy Owner or Spouse
  7. 7. SCENARIO #1 • Financing medical expenses or long-term care is the No. 1 reason that most seniors sell their life insurance policies. • A 2013 report issued by the U. S. Commission on Long-Term Care stated that the need for long-term care will grow dramatically over the next 20 years as the population ages. • The U. S. Dept. of Health & Human Services endorses life settlements as a solution to help cover long-term care expenses. (Continued on next page)
  8. 8. SCENARIO #1 (Continued) • 40%: The percentage of seniors who reach age 65 who will enter a nursing home during their lifetimes.* • 2.44 years: Average length of stay for current nursing-home residents.* • $73,000: Median annual rate, nursing-home care in U.S.* *Source: Morningstar (Continued on next page)
  9. 9. SCENARIO #1 (Continued) • The rising cost of nursing home care is motivating seniors to look at all their financial options, including surrendering policies. • According to, life settlements provided an average of 409% more cash to consumers than what they would have received by surrendering their policy. • Informing your senior clients about the option of a life settlement is the sensible thing to do.
  10. 10. SCENARIO #2 Optimizing the Asset Value of Key-Person Life Insurance When Selling the Family Business
  11. 11. SCENARIO #2 • The purpose of key person life insurance is to help ensure the financial stability of a company when an owner or “key person” dies. • When a key person retires, the company often cancels the corporate owned policy (COLI) and accepts any remaining cash surrender value. • Life settlements offer an attractive alternative that enables the company to receive a cash payment far beyond the cash surrender value. (Continued on next page)
  12. 12. SCENARIO #2 (Continued) • Some term life insurance policies with a conversion option to permanent coverage may qualify for a life settlement. • The increase in the number of small business owners who plan to retire over the next 10 years presents an opportunity for advisors to counsel business clients now about the advantages of a life settlement. 70% of the 12 mil. privately owned businesses in the U. S. will change hands as baby boomers retire in the next decade.
  13. 13. SCENARIO #3 Salvaging a Trust-Owned Life Insurance Policy on the Verge of Lapsing
  14. 14. SCENARIO #3 • Trust-Owned Life Insurance (TOLI) is often considered the cornerstone of an estate plan. • TOLI enables the trust to provide a cash inheritance to survivors, to cover estate taxes, liquidate debt, or create a legacy through charitable gifts. • But because of its long-term investment horizon to maturity, TOLI is often overlooked by those monitoring or managing the overall trust. (Continued on next page)
  15. 15. SCENARIO #3 (Continued) • Approximately 40% of life settlement transactions involve TOLI policies. • The percentage of TOLI policies at risk of lapsing is expected to increase, due in large part to the low interest rate environment which is jeopardizing the expected earnings potential for universal life policies. • Insurance advisors have an opportunity to help clients optimize the value of these at-risk policies by recommending a life settlement.
  16. 16. SCENARIO #4 Paying Off Personal Debt or Helping Grandchildren with Student Loans
  17. 17. SCENARIO #4 • 70% of 2014 college graduates are leaving the campus with student loan debt. • In 2014, college graduates have racked up an average student loan debt of $33,000. • $1 .5 TRILLION in student loan debt exceeds the nation’s $900 billion credit card debt. (Continued on next page)
  18. 18. SCENARIO #4 (Continued) • Legacy Trends: Some estate planning attorneys are incorporating distribution provisions in Family Trust documents that require the cash assets in the Trust to be used by heirs to pay off student loan debt before they can receive any remaining funds from the Trust. • Grandparents who do not have an estate plan or a Trust can create a “lasting legacy” by using the proceeds from a life settlement to pay off their grandchildren’s student loan debt.
  19. 19. SCENARIO #5 Retained Death Benefit Reducing the Death Benefit of a Policy to Provide Cash Flow for Retirement
  20. 20. SCENARIO #5 (Continued) • A retained death benefit is an ideal solution for seniors who wish to eliminate premium payments on an existing life insurance policy, while retaining a portion of their death benefit. • The policy owner receives a lump sum cash payment, keeps a portion of the death benefit, and is no longer responsible for premium payments.
  21. 21. SCENARIO #5 • Previous studies have shown that approximately 80% of life insurance policies will lapse. • A primary reason for letting policies lapse is the inability to afford premium payments. • Another reason for the high lapse rate is the fact that many seniors are not aware they have other options, including a “Retained Death Benefit.” (Continued on next page)
  22. 22. SUMMARY • This presentation was designed to be an objective source of information for advisors about the benefits of life settlements for seniors who qualify. • Professional advisors have a duty to inform their clients by presenting all the facts. • An informed senior is an engaged client!
  23. 23. THANK YOU! For more information, or to pre-quality a case, contact us: 1-888-335-4769 Jeff Hallman, Co-Founder Scott Thomas, Co-Founder