get a secondary opinion®
The American Tax Payer Relief Act (ATRA) has caused many seniors to question the amount of life insurance they still need to carry for estate protection. Many of those seniors want to retain some coverage but feel they no longer need all of it. That’s where a split death benefit life settlement can be an ideal solution. In this scenario the policy owner sells the policy but is able to retain a portion of the death benefit for beneficiaries and does not have to make any future premium payments.
Case Example | Split Death Benefit Life Settlement
During the annual policy review conversation, it was discovered that the policy owner didn’t need as much insurance as a result of the increase in the
Estate Tax Exemption & Portability. The client wanted to keep some of the coverage
but didn’t need all of it. They completed a SMV®, Secondary Market Valuation, to determine fair market value.
• Male age 78, $10 Million Universal Life
• Cash surrender value=$67K
The SMV® estimated fair market value at $697,000 for a lump sum payment.
Instead of a lump sum payment, the client opted to take a split death benefit offer and received
$2.15 million death benefit placed in an irrevocable trust for his beneficiaries with no future premium payments
One of the most commonly overlooked assets in M&A activity and business succession planning is life insurance. Business Valuators do not include life insurance as part of the Business Valuation. Astute planners who are aware of this fact can uncover additional liquidity for their clients that are normally overlooked by both the buy side and the sell side. Most businesses own key-person policies, have buy-sell agreements, or other forms of insurance in place to protect their business. These assets are not included on the balance sheet. Business owners who are selling their businesses are often age 65 and older and therefore are prime candidates to recoup fair market value for their life insurance.
Case Example | Sell side overlooks $800,000
A Business Exit Planner was helping his client sell his business to a private equity firm. The Key-Person policy was not included in the Business Valuation and the Private Equity Firm purchasing the business had no interest in the policy. The Exit Planner negotiated release of the policy to the seller.
• The business sold for $28 Million
• The 76-year-old seller retained the $10 Million entity owned insurance policy
and sold it on the secondary market for life insurance for a lump sum of $800,000
Universal life policies are notorious for being underfunded which inevitably leads to a significant escalation in annual premiums costs in order to maintain the policy to maturity. If the policy is no longer needed, or has become unaffordable, and is going to be lapsed, be sure to check for fair market value before lapsing or surrendering the policy. The liquidity uncovered in the life settlement process can be a game changer by helping senior clients recoup some of the money spent on premiums so that they can invest that found money for retirement planning needs.
Case Example | Trust Owned Policy-Lump Sum Life Settlement
An 81-year-old female had been told at the time of policy purchase in 1988 that her policy would have a double-digit internal rate of return. This did not happen and now she finds herself faced with a decision to make. Should she fund it, restructure, surrender, or explore other options?
• Female age 81, 3 million Trust Owned Universal Life purchased in 1988
• Underfunded with only $48,000 cash surrender value remaining
• In the fall of 2013, the carrier notified her that premiums would
increase by $150K annually if she wanted to keep the policy in force.
Instead of surrendering the policy for $48K she completed a life settlement
and received a lump sum payment of $1.1 million. Most of this “found money” was invested with the planner that helped her uncover liquidity in her unneeded UL.
Who qualifies? Organizing your relationships/database:
1) 65+ years and older who in your estimation have a 15 year +/- life expectancy
2) Annual level premiums of 5% of the face amount or less until maturity (Premium Ratio)
3) Policy face amount of $100,000 or greater
“90% of seniors who lapsed a life insurance policy would have considered a life settlement had they been aware of the possibility.” Insurance Studies Institute
Questions you can ask your client to uncover settlement opportunities:
1) As part of our service, we have an internal team that does life insurance policy valuation similar to getting real estate, artwork, or jewelry appraised. “Have you had your life insurance reviewed in the last 12 months?”
2) The Big Question - “Are you, or anyone in your family, anticipating lapsing or surrendering any life insurance within the next year?”
3) If yes, “Would you like to see if your policy is worth more than the cash value? You may qualify for a lump sum cash offer or a smaller policy with no future premiums due.”
4) Let’s see if you qualify and get a secondary opinion® of how likely your policy is to qualify for value above the cash value by taking the policy value quiz at https://ashargroup.com/quiz
The results of the quiz will give you an indication of when to call an Ashar life settlement specialist for further discussion. If it looks viable, then we will ask for the following:
• An in force illustration to maturity using the Ashar language we provide you.
• Your Client fills out an inquiry packet for the applicable State. (At the very least a medical questionnaire, Insurance Release, and HIPAA)
• Once all the information is returned to Ashar, we complete an internal medical analysis and price the case.
Within 5-7 business days after Ashar receives all the documents, we will give you a range of potential value so that you can help your client make an informed decision.
The Ashar Group serves as a strategic partner and specialist in the Secondary Market for Life Insurance Settlements. For more information, please visit www.ashargroup.com
Who is your client listening to? No different than other markets, there are companies trying to disintermediate fiduciaries and planners. They are aggressively advertising direct to your clients about receiving cash for their life insurance policy. If they’re successful in their quest, then your clients could be left without representation, vulnerable, and not treated in good faith.
Here’s what they could expect to hear. They promise your client something called “fair value”. It’s a subtle play on words with huge implications that could mislead your unsuspecting client into thinking they will get a good result. By communicating directly with your client, this strategy can be very profitable for them, not necessarily the client. Consequences can be long-term such as compromising the client’s existing financial plan and even introducing new products and services that aren’t suitable. The client is misled because they really think that they are getting a “fair value” because they received more than the cash surrender value, and as a bonus, eliminated intermediary fees. What could be better? Truth be known, they could have left as much as 800% or more of additional value on the table because they were dealing with a source that has a fiduciary responsibility to the fund they represent, not the consumer. If you were selling your house, would you like one offer or multiple offers to drive up the amount to your family? The same is relevant to selling your life insurance policy.
An additional downside for the client is not being duly represented. If a client were involved in a real estate transaction, they would hire a real estate broker or real estate attorney. The same process is true for many other transactions. Why would this be different? It’s always important to have an advocate on your team that knows where the potential landmines are located and the value can be identified. That’s why an experienced and independent life settlement brokerage firm becomes involved. This process can be complex. It’s critical to have a partner that has stood the test of time and can navigate the settlement process, saving the client time and money.
How do you protect yourself and your clients from this potential misrepresentation and misalignment? Here are few key questions to ask:
1. Is the broker or provider purchasing this policy for their own portfolio?
2. Do they have a fiduciary duty to the purchaser or to the client?
If the answer to either one of these first to questions is yes, then your clients’ need you to step in and represent them. The offer they would receive without your intervention would be heavily in favor of the buyer and not in your clients’ best interest. Also make sure the buyer is telling you the truth by asking them to respond in writing with these direct questions:
a. Will they rep and warrant that they do not have any ownership interest in the purchase of the policy?
b. Will they rep and warrant that they have no stake in the firm buying the policy?
3. Are they using the term “fair value” or fair market value? If they tell you that they obtain fair market value, then MAKE THEM PROVE IT! Ask the following questions:
a. Are they seeking multiple bids from several different institutional buyers? If not, then your client may not get what they deserve and could potentially be leaving as much as 800% or more of additional value on the table.
b. Are they being transparent? Will they provide a list of regulated licensed buyers and detailed bids? If they can’t or won’t do this, then that’s a big red flag.
Fiduciaries and planners that follow life settlement best practices always use an independent full service life settlement broker to design the case and manage a competitive bidding process that results in their clients receiving fair market value. Then, and only then are the best interests of your clients being served.
If your client is in a position where you think it would be prudent to consider alternatives, talk to a secondary market specialist. You can also go to https://ashargroup.com/policy-value-questionnaire/ to take the first steps in determining if a policy may qualify for a life settlement.
Especially in a time where health costs are higher than ever, pensions are becoming a thing of the past and the financial stress still lingers in the investment accounts of Americans approaching their retirement years.
The Secondary Market has taken off over the last decade, generating billions to consumers through the surrender value of their policy. Right now, $92 Billion worth of Term policies are available on seniors aged 65 and older. These are policies that could be worth a large sum of money in the Secondary Market, and could make the difference between living with dignity and merely existing for many senior citizens.
To explore the benefits of the Secondary Market, seniors can get a SMV®, Secondary Market Valuation, on their policies through their advisors. With an SMV®, advisors have valuable information about the fair market value of a policy, information that can help clients who are facing fixed incomes or less aggressive investment decisions make informed decisions regarding financial challenges.
If you think your client is in a position where a SMV could provide a better outcome, talk to a secondary advisor at 800-384-8080. You can also go to https://ashargroup.com/policy-value-questionnaire/ to take the first steps in determining if a policy may qualify for a life settlement.
Many times a policy owner doesn’t realize the true value of their life insurance policy, letting it lapse or surrendering it back to the insurance company before checking for Fair Market Value.
For example, an 81-year-old female had purchased a $3 Million Universal Life policy in 1988 and was told that her policy would have a double-digit rate of return. Well that did not happen and as a result; her policy did not build up enough cash to keep it going as projected. Fast forward to 2013 and much to her surprise the trustee receives a premium notice from the insurance carrier that the annual premiums would jump from 67K annually to $150K if she wanted to keep the policy in force to age 100.
How did this happen? Back in 1988 when she placed the policy in an ILIT, her nephew was appointed as the trustee as an accommodation. Not surprisingly, he did not monitor the cash values, which caused the policy to be underfunded with only a $48,000 cash surrender value remaining at renewal in 2013. Because the aunt no longer had a need for this insurance, she was going to surrender the policy and settle for the $48K cash surrender value.
Luckily, her close friend and attorney suggested that she first get an analysis of SMV®, secondary market value. The result was more than she imagined: instead of receiving only the $48K surrender value, she completed a life settlement and received a lump some Life Settlement payment worth $1,100,000.
For the nephew or the advisor, if the attorney had not recommended SMV® analysis, over $1,000,000 would have been undiscovered, which could have made the trustee or an advisor liable for this serious oversight.
No matter what the scenario is, when it is time to liquidate, talk to a secondary market specialist to discuss your options in detail to determine the most profitable alternative. If you would like to talk to a Secondary Market Specialist at Ashar, please call 800-384-t8080. You can also learn more at ashargroup.com.
get a secondary opinion®
A new life settlement option has been developed to assist senior clients who have an immediate need of long term care. It applies to nursing home care, home skilled nursing care, assisted living, and hospice. This long term care (LTC) benefit program is an approved Medicaid spend down and allows the sale of a life insurance policy rather than forcing someone applying for Medicaid to surrender their life insurance. Funds from the sale of the policy are placed in an irrevocable trust to begin immediate payout for LTC monthly expenses. This program is gaining in popularity as Legislators see it as a good way to control Medicaid costs.
For adult children who are caring for their parents at home rather than putting them in a nursing home, this program can help keep them from having to dig into their own retirement or education funds in order to care for a parent. This is not long term care insurance because this program is only applicable for clients in need of LTC right now. It is a timely option for those that did not plan ahead by getting insurance but still need some financial assistance.
As needs for better standards of living arise for seniors who have outlived their retirement income, who are straining family budgets or who weren’t prepared for increased costs associated with long-term care, alternatives like the long term care benefit program, have been a valuable and life-saving solution for advisors — helping them support families with aging parents.
Talk to a Secondary Market Specialist at 800-384-8080 or visit ashargroup.com for more information on this emerging market.
Even though life settlements have been available for over two decades, fiduciaries may not be clear on measures that need to be taken to protect the best interests of their clients. There are a few simple guidelines that you can follow to help mitigate risk.
The first and most important is to know whom you are dealing with when you choose a life settlement resource to assist you in the process.
Who do they represent? Do they have a duty to you and your client or do they have a fiduciary duty to get the best internal rate of return for the fund they represent? Your best bet is to use a life settlement broker that represents you and your client and shops the entire market, gets multiple bids from multiple parties, and secures an offer that represents fair market value. Providers and funds do not represent you and your client and can only offer something called “fair value”.
Is your broker of choice licensed nationally? Do they have a full service operation that includes extensive case design, internal medical underwriting, and pricing?
Your reputation as a fiduciary is at stake every time you choose a specialist to help you with a transaction that is beyond your area of expertise. That’s why it pays to complete your due diligence before you make a selection. Be sure to get recommendations from firms and fiduciaries that have worked with them before. This transaction is no different than others you've participated in throughout your career. Look for integrity.
Avoid common misconceptions about over shopping your policy. Too many companies communicating confusing messages to the market could negatively impact the client. Select one broker so that your case doesn’t get marginalized or commoditized. This is a regulated market and all brokers go to the same licensed providers/funds; however their credibility and capability to represent can be harmed if the approach isn't deliberate.
All brokers are not the same. Some of them are boiler room operations, some are one and two man shops, some are operating with borrowed licenses, some of them do life settlements as a sideline business, and most of them don’t fully shop the market and drive competitive bidding. Be sure to complete your due diligence and find a broker with an impeccable reputation and a full service operation dedicated solely to life settlements, secondary market solutions, and life policy valuations.
With more on the line as Life Settlement options become more popular, it is important as an advisor to evaluate a client’s financial situation then talk to a Secondary Market Specialist to determine if a Life Settlement or a Secondary Market Valuation can be a logical option. If so, a Secondary Market Specialist can analyze your client’s policy and determine the likelihood of receiving a desirable offer for their policy in the Life Settlement Secondary Market.
If you think your client is in a position where a SMV could provide a better outcome, talk to a secondary advisor at 800-384-8080. You can also go to https://ashargroup.com/policy-value-questionnaire/ to take the first steps in determining if a policy may qualify for a life settlement.
Is Life Insurance Your Client’s Greatest Asset? A life insurance policy can have a monetary value on the Secondary Market that far outshines its cash surrender value. Using a SMV®, Secondary Market Valuation, can help you determine the actual fair market value of a policy for your client. And finding previously unknown monetary value not only will elevate your worth in your client’s eyes, it can minimize potential liability if a policy lapses or is surrendered for minimal value. Here’s a compelling example.
A 74-year-old male was retiring from his business and had a $1 million Term policy that was still convertible to Universal Life. In looking at his overall plan, the policy was listed at $0 on the balance sheet and the client didn’t realize the policy could have value in the secondary market. With an annual premium of $35K and a life expectancy of approximately 10 years, his was able to appraise and sell this policy for $175K in the Secondary Market. The found money was used to fund retirement and long term care needs.
With a little due diligence on an advisors part, a Life Settlement can become one of the biggest assets in their clients’ overall plan, not to mention a great way to enhance the relationship between advisor and client.
To take the first steps in determining if a policy may qualify for a life settlement, go to https://ashargroup.com/policy-value-questionnaire/. It only takes a minute, and it could help save your clients thousands.
