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.