Did you know that life insurance is an asset? As such, it has the same legal rights as other assets - including buying, selling, and appraising. Similar to selling your home, competition drives value.

How does life insurance work?

Life insurance is typically purchased when a major life event happens, such as getting married, buying a house, or having children. Monthly, quarterly, semi-annually, or annually, premium payments are made to keep the policy active. These premiums serve to pay the cost of insurance, or what it costs the carrier for your insurance. For some policy types, a set amount of money gets paid into the policy until a certain age or date.

The purpose of life insurance is to provide a lump sum payout in the amount of the death benefit, or face amount, for debts, living expenses, and other necessities in the event of an untimely death. It can also be used as a way to pass wealth from one generation to the next.

In this instance, the first value of a life insurance policy is the death benefit. But what happens when the need for coverage changes? Or the policy owner no longer wants to keep paying premiums?

Cash Surrender Value

Depending on the policy type, cash may accumulate over time. This built-up money is called the cash value. The first option for exiting the policy is to surrender it to the carrier for the cash surrender value (CSV). The CSV is often referred to as the carrier purchase value. The CSV is much lower than the policy’s fair market value.

Opening Bid (Direct-to-Consumer Buyer Offer)

There are other interested parties in purchasing a life insurance policy beyond the insurance carrier. Institutional buyers, such as state pension plans, endowment funds, and others, purchase policies as a diversified asset class. Many of these firms have a buyer that directly represents them and their interests. These buyers advertise to consumers with the goal of purchasing their policy for more than the CSV but less than the fair market value and without the involvement of the client's trusted advisor.

Buyers have a duty to the funds they represent to ensure the buyers' best interests are protected. This means purchasing the policies at a lower rate, so the fund has a higher rate of return. In order to achieve such high rates of return, the offer to the policy owner is lower than fair market value.

Broker-Negotiated Auction Value

The final purchase price for a life insurance policy is the broker-negotiated auction value  - or fair market value. Using a broker, policy owners often receive 6 - 12 times more than the CSV. But how do brokers achieve such high offers?

As a life settlement broker, we use our proprietary auction platform to generate competition and receive multiple bids per policy from various funds. Through this process, policy owners receive bids that far exceed that of the other two possible exit values.

Ashar Group is a nationally licensed life settlement firm that acts as a fiduciary to protect the best interests of policy owners by creating a competitive policy auction to deliver the best value to the seller. Ashar Group does not sell life insurance, management assets, or purchase policies. We are an independent resource for fiduciary advisors and their clients specializing in life insurance valuation for planning purposes. Contact us today to see if a life settlement is right for your client.