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The value of a life insurance policy
on a senior insured can now be defined in terms of what a buyer is
willing offer in a competitive
marketplace. The emergence of the secondary marketplace has allowed
life insurance to evolve as an asset that is now on par with equities,
bonds, real estate and other holdings. The recent emergence of
this market has enabled the life settlement transaction to become
a valuable
planning tool that provides policy owners a new “exit strategy” from
unneeded, unaffordable, or underperforming life insurance policies.
It
is imperative that financial services professionals who serve
both senior individuals and businesses now educate themselves on
the benefits that these transactions may provide their clients.
The professionals
impacted include: CPAs, Bankers, Attorneys, Estate Planners,
Asset/Wealth Managers, Financial Planners and Insurance Professionals.
The following client
situations involving an insured over 65 years of age warrant a
life settlement appraisal by their advisor.
Individually Owned Policies
• The owner is considering surrendering
or lapsing the policy.
• The owner is considering a 1035 exchange.
• The insured outlives the beneficiary.
• The couple is in the process of divorce.
• The owner can no longer afford premiums.
• An underperforming policy can be replaced
with a new, less expensive policy.
• Money is needed to provide for increasing
long-term care or medical assistance.
• The owner is filing for
bankruptcy.
Business Owned Policies
• A policy on a key executive or business
owner is no longer needed due to change in ownership or retirement.
• The policy purchased to finance a
buy-sell agreement is no longer needed after one or more of the
participants
leave the business or it has
been sold.
• Executives have left a company
and informal funding for deferred compensation plans are no longer
required.
• An exit strategy
is needed for split-dollar policies.
Trust Owned Policies
• The trustee needs to replace a single
life policy with a more appropriate survivorship policy and 1035
exchange
is
not available.
• There is a reduction in the estate
size due to loss of net worth.
• Changes in estate tax
laws and/or estate plan reduce projected estate tax liability.
• Cash is needed for charitable giving
or to establish a Charitable Remainder Trust.
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