Life Insurance Policy Settlement
Another source for freeing up hidden capital to use for other financial purposes is to sell an under performing or unneeded life insurance policy on the secondary market. The following information is provided from life insurance continuing educational classes and life insurance settlement providers.
Life insurance policies have traditionally provided two principal types of benefits: death benefits paid to a beneficiary upon the death of an insured and, in the case of permanent life insurance, cash values available to the policy owner as a loan or upon surrender or maturity of the policy. Although policyowners have been able to transfer ownership of a policy by way of an absolute assignment for about 100 years, such transfers were seldom part of a sales transaction. The ability of a policy owner to sell his or her policy in a secondary market represents a substantial broadening of the available options. Through the secondary market, a policy owner may sell his or her life insurance policy for an amount that is in excess of its cash value—often substantially so. In fact, even term life insurance policies that have no cash value may be sold in the secondary market.
A life settlement is made by a company, commonly referred to as a life settlement provider, which enters into a sales contract with a policy owner to purchase the existing policy. The life settlement provider, upon purchase of the policy, is responsible for paying subsequent premiums. Upon the insured’s death, the settlement provider receives the policy’s death benefit. The investment, represented by the sales price paid for the life insurance policy plus subsequent premiums, pays off for the investor when the insured dies. The typical life settlement involves the purchase of a life insurance policy under which the insured is 65 or older, has experienced a decline in health, and has a life expectancy of less than 15 years (a range of 6 to 12 years is the norm).
The Decision to Terminate a Life Insurance Policy
Generally speaking, a policy owner’s decision to terminate an in-force life insurance policy stems from one of the following:
• The owner perceives that the policy is under performing.
• Premium increases make the coverage unaffordable.
• The needs for which the policy was purchased have changed or no longer exist.
Benefits for the Policy Holder
- Purchase life insurance to cover estate taxes
- Estate size changes creating the need for a larger or smaller face value to cover taxes
- Fund new more cost effective coverage
- Fund a life product that better suits individual needs (annuities) (business startup)
- Purchase a Pre-Need Contract
- Purchase a Survivorship policy
- Pay off a debt
- Funds for a charitable gift / Gift to family members
- Create funds to invest elsewhere
- More valuable alternative than surrendering a policy
- Purchase long term care insurance
- Key-man insurance no longer needed
- Buy/sell agreement is no longer needed due to a company sale
- Purchase a minority interest in a business
- Bankruptcy creates need for liquidation
- Pay off company debt
The major factors affecting the size of a Life Settlement offer are:
- State of residency
- Type of policy
- Cost of coverage
- Health of insured
The Process* Where do we begin?
- Complete the simple life insurance appraisal request form (available by contacting us) and submit with a copy of the policy, if available.
The appraisal process consists of:
- Collecting policy and medical information: 3-4 weeks
- Completing initial underwriting of case: 1-2 weeks
- Sending complete case to funding organization: 1 day
- Negotiating and obtaining offers or declinations: 2 weeks
- Communicating appraisal value: 1 day
Completing the settlement process:
Contracts are normally delivered within 72 hours of acceptance Review, sign and return settlement closing package: 1 week
- Cleanup and review by compliance: 3 days
- Record changes by insurance carrier: up to 2 weeks
- Escrow organization releases cash settlement to the client: within 48 hours of documented ownership change
- Client rescission period: depending upon state and provider, up to 4 weeks
- Referral source is compensated post rescission period
*The time line above was taken from a summation of previous cases. All estimated times are approximate and are subject to change without notice.
Our goal is to secure funding for every policy. Matrix Equity’s expertise has enabled us to continue to be very successful in placing even unique cases. Currently, most funding groups focus on seniors over the age of 70, or policy holders with serious illnesses of any age. No policy is too small to review, and all types of life insurance can qualify.