Life Settlement – A Real Opportunity
Did you know that AgencyONE can help you with your life settlement cases? As a result of a strategic relationship AgencyONE has with a premier life settlement broker, AgencyONE is uniquely positioned to help underwrite your client’s medical file and help the life settlement broker build the case to try and achieve the most value for your client. This ONE Idea will discuss what is happening in the life settlement market and how AgencyONE can provide value.
Life Settlement – Market Evolution
The early years of the Life Settlement markets were plagued with inefficiencies and poor regulatory oversight which resulted in a Wild Wild West environment of pricing and manipulation. State insurance departments stepped in to institute the much-needed regulation which has helped to increase transparency and the ethical handling of such transactions. As the industry has matured, so has its efficiency and its reputation. In fact, insurance commissions nationwide now believe that a financial advisor should consider a life settlement option as part of the due diligence process before a replacement, lapse or surrender. It is in the client’s best interest to consider all options!
That being said, the Capital Markets have taken notice of the improved efficiencies and tighter regulatory oversight. The investment community has embraced life insurance settlements with fixed premiums and guaranteed death benefits as a non-correlated asset that we know will ultimately pay a claim. While the stock markets may go up and down, the life insurance policy is a stable asset within any investment portfolio. More investment capital sources have realized the true value of a non-correlated asset block so demand for policies remains high. This in turn translates to a customer service value proposition.
Life Settlement – Some Interesting Statistics
The Life Insurance Settlement Association (LISA) provides an important market summary of transactions from 2021:
- Consumers were paid over $750M by LISA Members for the sale of their unwanted life insurance policies, instead of receiving only $96M had they chosen to lapse or surrender their policy.
- Consumers received an average of 7.8 times more than their Cash Surrender Value when they sold their life policy, translating into over $660M more in American seniors’ pockets than what they would have received from life insurance carriers.
- More than 3000 transactions were conducted by LISA members totaling over $4B in Face Value. These figures represent just a tiny fraction of the 9 million plus policies & $642B that are lapsed or surrendered annually by life insurance consumers.
- The average policy size, or amount of Net Death Benefit, per transaction was $1.33M.
Life Settlement – Policies That Qualify
Clients over age 65 with face amounts of $150,000 or more generally fit into the basic guide for life settlement consideration. The INFORCE illustration guidelines should be shown to “run” to age 105 with low-level premium payments. This structure helps the Provider/ Buyer (the guys with the checkbook) determine cash flow needs and expected returns on their investment in the contract.
Possible Clients for Life Settlement Consideration:
1. Policy premiums are too expensive and/or contract not performing
2. Policy is no longer needed
3. Liquidity needs
4. Revisions in tax laws or ultimate purpose of the protection have changed
5. Business Insurance needs changed
6. Existing Term is approaching maturity and conversion is too expensive
7. A 10-35 replacement is being considered and trustee is obligated to consider life settlement exchange option as a fiduciary of the trust value
The reality is that if you do not talk to your clients about life settlement, he or she may find someone else, possibly through a basic internet search or TV commercial, that is marketing directly to consumers. Please note that in this situation the policy buyers’ interest is rarely aligned with your client’s.
Through AgencyONE’s strategic life settlement relationship, we are able to work on behalf of the advisor and client to find the RIGHT buyer offering the best possible price for the policy. In this case, the policy buyers’ interest is in direct alignment with the client or the seller of the policy.
The full-service life settlement brokerage firm that AgencyONE has a strategic relationship with has over 20+ years of industry experience and delivers innovative planning solutions and unparalleled value to your clients. This firm understands that clients’ needs evolve over time and that an exit strategy using a life settlement is a very valuable tool to use when warranted. They also maintain important ties with the nation’s largest and most reputable life settlement funds and are considered experts in the field.
Lets look at a few life settlement case studies and the extraordinary value that has been provided to AgencyONE’s advisors and their clients recently:
Case Study #1:
The client was a 95-year-old male in perfect health with a Second-to-Die contract and a wife who predeceased him. The policy was a $1M UL with a cash value of $139K and a $286K cost basis. The policy was initially funded with a lump sum 10-35 and was only expected to last another 2 years.
The gross offer for the policy was $545K and it was ultimately sold using a fund that did not require life expectancies. The expectations of the client and the advisor were well exceeded.
Case Study #2:
The client was a 65-year-old male with 3 policies that totaled a $6M death benefit. The client intended on surrendering the contracts until his advisor explained that a better and more profitable way to dispose of the policies might exist. AgencyONE confirmed that the client “fit the box” and met the basic criteria for a life settlement consideration.
The case required a complete medical file which was quickly gathered by AgencyONE and included HAPI records (those gathered using Human API). Life expectancy reports were ordered by our strategic life settlement partner in Philadelphia on a rush basis and the bidding war began.
The initial $1.6M offer was ultimately negotiated UP to $2.52M gross and the proceeds were transferred to the client within 7 days of signing the closing documents. This case took a little less than 3 months from start to finish and again, the client and the advisor expectations were far exceeded!
The Life Settlement Value Proposition
The VALUE (what the policy is worth) is based on a number of factors, but client Life Expectancy calculations are the most important. A shorter life expectancy translates to less premium payment outlay for the buyer and a shorter-term investment in the policy overall. For the most part, the investment community is primarily interested in life expectancies of less than 15 years. Basic math would tell you that if the client is currently age 75 with a normal life expectancy of age 90, then a 15-year premium payment period should be expected before the maturity (the death claim) might occur. This is a long time period to tie up investment capital so shorter life expectancies generate higher interest and more competitive bids. It is extremely important to realize that PREMIUM PAYMENTS must continue to be made by the BUYER of the contract. From the CLIENT perspective, this policy remains INFORCE and must be reported by the client on any future life insurance application.
Whether the case involves building medical files or working closely with our strategic life settlement relationship to negotiate a maximum settlement price, AgencyONE is uniquely positioned to help you with your life settlement cases. We are also happy to host webinars or team calls to discuss life expectancy importance and how life settlements work.
Pick up the phone…give us a call….and please remember, a life settlement today can offer a RETAINED death benefit component instead of a 100% sale of the death benefit protection. It’s all about the price!
Please contact AgencyONE’s Marketing Department at 301.803.7500 for more information or to discuss a case.
