Compelling Case Examples Illustrate the Cash Windfall Potential of Life Settlements for Converted Term Life Insurance Policies
March 31, 2015
As the secondary market for unwanted permanent life insurance policies continues to generate broader awareness among senior clients and their agents, many consumers and their advisors may not be aware that a term life insurance policy (if convertible) may also qualify for a life settlement.
In the two case examples illustrated below, Jeff Hallman succeeded in generating substantial cash life settlements for unwanted term life insurance policies that had been converted to permanent insurance.
Based on the trend we are seeing at Asset Life Settlements regarding “term-to-perm” life settlements, it is clear that a life settlement for a term conversion is an effective solution for term policies that are no longer needed. Agents and senior consumers should keep this in mind as they evaluate the continued need for term insurance – especially in light of the higher tax exemption amounts set by the 2012 passage of the American Taxpayer Relief Act (ATRA), rendering many life insurance policies obsolete for estate tax purposes.
Post-ATRA: Trust-Owned Term Policy Conversion Generates $152,500 for Heirs
This life settlement case involved a 70 year old male with a trust-owned life insurance policy. In 2001 at the age of 57, the insured established an Irrevocable Life Insurance Trust (ILIT) with a $3 mil. term life insurance policy. At that time, the federal estate tax exemption was $675,000, and the size of the estate was such that the grantor of the trust needed insurance protection for heirs to pay the estate taxes upon his death.
But as the federal estate tax exclusion amount increased over the years, and as his need for insurance protection decreased, the insured sought to gradually optimize the value of his insurance asset in the secondary market.
In 2008, the insured converted the $3 million term policy to a universal life policy, and then opted to sell $1 million of the face amount. In 2010, he further reduced the $2 million death benefit by selling an additional million. And finally, when the estate tax exclusion amount increased to $5.34 million in 2014, the insured sought to sell the remaining $1 million policy since the value of his estate was under the estate tax exclusion threshold, thanks to ATRA.
Asset Life Settlements brokered the $1 million policy transaction in the secondary market and obtained a life settlement of $152,500 payable to the ILIT. The cash was later distributed from the ILIT to the beneficiaries and the insured was very pleased to witness the fulfillment of his legacy objective.
Company Receives $161,250 from Selling a Key Man Life Insurance Policy
This case involved a $1.5 million term policy which was purchased 19 years ago on a 60-year-old owner/employee. The original purpose for the key man policy was to provide the business with the necessary cash flow in order to buy back company stock in the event of the employee’s death. Four years ago when the insured reached the age of 75 and the term policy was nearing expiration, the company’s insurance agent facilitated the conversion of the key man term policy to a universal life policy. Now that the insured is 79 years old and fully retired, the company decided it longer had the need to continue the life insurance policy on him. Similarly, the insured was not interested in keeping the policy for estate planning purposes. Jeff Hallman brokered the transaction in the secondary market and obtained a life settlement in the amount of $161,250. The business was glad that their insurance agent had recommended the conversion of the term policy and was thrilled to receive the cash windfall for a policy they were about to let lapse.
For insurance agents and financial professionals who serve clients owning term life insurance, we encourage you to evaluate your clients’ continued need for life insurance based on the federal estate tax exclusion grid that accompanies this article. We would be happy to assist you in exploring settlement options for unwanted policies following the conversion to permanent insurance. Please feel free to contact us at 888-335-4769, or visit us at www.assetlifesettlements.com