Asset Life Settlements recently brokered a transaction that illustrates how a healthy senior with a long life expectancy may be eligible for a life settlement – if the broker knows what to look for when appraising the policy’s value.
Those who are familiar with the qualification factors for a life settlement know that the health and longevity of the insured is a key determinant as to whether the policy owner qualifies. Generally, the shorter the life expectancy (LE), the greater the chances of finding an institutional buyer (known as a provider) to purchase the policy. That’s because providers (who agree to assume all future premium payments when the policy is purchased from the seller), prefer to purchase policies where the insured has a life expectancy of 12 years or less. And the shorter the life expectancy, the higher the buyers’ offers tend to be.
But there are occasions when a skilled broker can make the difference when it comes to cases involving a long LE, such as the transaction outlined below that was successfully brokered by Asset Life.
- 72-year old healthy male
- 17-year LE
- $6.8 million SGUL policy
- $175,000 annual premium
- Lowest Net Offer: $175,000
- Highest Net Offer: $420,000 (Offered accepted by client)
Detailed Case Summary:
This case involved Mr. Greene (not his real name), a 72-year old healthy senior who felt burdened by the $175,000 premium payments for a $6.8 million SGUL Trust-Owned Life Insurance policy. His financial status and lifestyle circumstances had changed and his family no longer needed the income protection. “My client was simply ‘done with it’ and was determined to trash the policy and let it lapse,” said his financial advisor who regularly sends his life settlement cases to Asset Life.
Although Mr. Greene felt the policy was not worth the trouble and paperwork to pursue a life settlement, the advisor believed the policy could have some residual value and might be worth a “few pennies” in the secondary market. He recommended that Greene allow him to explore the possibility of a life settlement and work with the team at Asset Life Settlement who would shop the case to multiple money sources.
Four months passed while Mr. Greene continued to delay his decision. With only 30 days left before the policy’s annual premium became due, the advisor received the go-ahead from Greene under one condition: Asset Life Settlements would have to complete the transaction prior to the due date for the annual premium (only one month away), as Greene did not want to make any further payments on what he considered a worthless cause.
Upon receipt of Greene’s application, Asset Life fast-tracked the case. After reviewing the policy illustrations and two life expectancy evaluations revealing an LE of up to 209 months (17.4 years), the prospects looked grim for finding a secondary market funder who would be interested.
We decided to take a deeper dive into the status of the policy in hopes of discovering an alternate set of values that would make the transaction more attractive to buyers. We contacted the carrier to request a more current annual statement with premium history and illustrations. This new information revealed that the SGUL policy had a shadow account with a positive balance. This was the “game changer.”
Fortunately, Asset Life Settlements knew of several niche funders who would buy policies with long LE’s, but it would depend upon whether the reserves in the policy’s shadow account would substantially reduce the cost of insurance (COI) year after year, and thereby lower the amount of future premium payments.
Asset Life presented the case to the niche funders and received offers from two buyers. One buyer came in with a net offer of $175,000, while the winning bid (net offer) came in at $420,000. With only hours remaining on the day Greene’s premium payment was due, we presented Greene’s advisor with the winning bid. While this was good news for his client, it was impossible to finalize the transaction and issue a settlement check in time to make the premium payment by COB that day.
The advisor immediately huddled with Greene and the estate attorney to discuss the winning bid for the Trust-Owned Life Insurance policy. According to the advisor, the estate attorney was “dumbfounded” by the cash windfall and urged Greene to “take the money and run to the bank.” The attorney further advised that this new “found money” could be used in a Trust-to-Trust transfer to fund the premiums for ten years on a separate policy with Greene’s wife as beneficiary. Finally, Mr. Greene agreed to move forward.
But a major obstacle remained that could have been a deal-killer. Greene still refused to make the final premium payment, even though Asset Life had successfully negotiated with a funder to purchase the policy.
Asset Life continued to negotiate with the funder who agreed to explore all possible options to get the deal done. In the end, the funder agreed to make the final premium payment to keep the policy in force until the transaction was finalized, and Asset Life agreed to a reduced commission in order to offset the funder’s cash outlay for the premium payment.
In the end, Mr. Greene was stunned to receive a substantial windfall for a policy he thought was headed (in his words) to the “trash bin.”
While the circumstances that came together for this transaction to be successful are somewhat rare, we want to urge policy owners and their financial advisors not to readily dismiss the life settlement option if it appears the basic qualification factors are not met.
As experienced brokers, the team at Asset Life Settlements is familiar with each funder’s unique purchasing parameters and we can readily assess the merits of each transaction by taking a deeper dive into the details of each policy. Each application requires the broker to conduct a thorough analysis by reviewing the policy’s premium history and illustration of future premium payments, the carrier’s rating, cash build-up, underwriting criteria such as the applicant’s age and life expectancy (LE), health history, loans on the policy, and so on. More importantly, experienced brokers life Asset Life Settlements have acquired first-hand knowledge of the funding practices of “niche buyers” for policies that would normally be rejected by other funders. In some cases, it takes experience working with niche funders to know whether a senior with a long life expectancy could potentially meet the buyer’s purchasing criteria based on whether the policy design had an “alternate value,” such as a positive balance in an SGUL’s shadow account.
If you have a potential life settlement case, we encourage you to call us at 855-768-9085 to request a preliminary pricing analysis. There is no cost or obligation and we will be happy to advise you of the best recourse for your unwanted policy.