The Secondary Market for Life Insurance is a global market with a variety of institutional investors. It’s primarily comprised of private equity firms, pension funds, hedge funds, reinsurers, and global banks. In a life-settlement transaction, a policyholder sells an existing life insurance policy to an institutional investor for a lump sum that is higher than the cash surrender value, but less than the full death benefit. The fund then becomes the new owner/beneficiary, pays the premiums, and collects the payout when the seller passes. Although this regulated and global Secondary Market has been around for over a decade in many forms, the awareness of this option is still in its infancy.
For those that are unfamiliar with the concept, similar planning strategies have benefitted consumers assigning their life insurance policies to a third party, such as donating a policy to a non-profit that will provide value when the insured passes. One of the key differences is that in the life settlement market the insured and policy owner receive a lump sum today, similar to a structured settlement or lottery buyout. This is commonly used to fund lifestyle and caregiving needs, many times relieving pressure for the adult-children that are caring for their loved ones, instead of doing the proper planning for their own situations.
There are unique situations when these two planning solutions are integrated for the consumer and the non-profit. There have been many situations where our team has been asked to collaborate with an advisor that works closely with a non-profit to value policies that have been donated to their cause. Far to often the policies do not perform as planned and premiums become due, which was never included as part of the initial gift. In situations such as these, the policies could be appraised for their fair market value and sold in the secondary market instead of lapsing the policies for minimal value, therefore providing significant liquidity to the non-profit for current needs. For example, our team was approached by a non-profit that had three $1M policies that they were going to surrender for less than $25K collectively. We represented the policy owner to value the policies and negotiated approximatly $900K that they were able to receive today to benefit their cause. Due to the life settlement option being available, thousands of individuals will benefit from the innovative advisor that we collaborated with to serve this non-profit.
As a reminder, due to privacy and regulatory concerns, it is critical to secure the services of a licensed and experienced broker to help facilitate the case design, presentation, negotiation and closing process.
If you are considering appraising or cashing in your policy, talk to a secondary market specialist at Ashar who can guide you through the process. You can also go to https://ashargroup.com/policy-value-questionnaire/ to help you determine if your policy may qualify for a life settlement.