TURN AN EXPENSE INTO A PILE OF $$$ MONEY!
POSTED ON WEALTHPLANMAN
What is a Life Settlement?
Most reading this for the 1st time have no clue what a Life Settlement is. If you have stumbled upon this blog article this could be the absolute best investment you ever decide to get involved in.
Why?
Because where else can you get a double digit return with the “G” word behind it.
That word is guaranteed.
Now that word is not backed by the Federal Government or by FDIC or even the California Loan Guarantee Program. It does have some solid backing by Institutional investors. The sale of a life insurance policy to institutional investors is an asset according to the Supreme Court. (Grisby v Russell 1911)
(Pension Funds, Mutual Funds, Prime Banks, or YOU can be an investor!) Only two products regarding money can a do use the G word. Only Banks and Insurance Companies can. This should be noted that the G word here has a risk. However as I see it the only risk to an investor is Time!
Ask yourself this question, has any life insurance carrier in the last 100, maybe 200 years not paid a death benefit claim in the USA? The answer is no!
These buyers are just like any investors looking to make a potential gain from an investment.
Your Life Policy
Term or Perm there are many different types of each. Term policies are temporary for a specific time like 10, 20 or 30 years. Perm policies or permanent means until you die.
Now a life settlement is the sale of any of those types of life insurance, to an institutional investor, (even soon to expire term life insurance.) No matter what your policy is if you need money and you are terminal you want to see what options you have. Life Settlements is just one option but may be your best option.
Why Would Anyone buy a Term Life policy?
(Note: before you have your term policy expire either contact us or the person or agency that sold you your policy.) Most term life insurance policies, if not all term policies are inexpensive to start but toward expiration get to be awfully expensive. However, most offer the opportunity to convert or have a convertible to a permanent policy clause.
Convertible simply means you can (with a one-page document) convert to any permanent type policy that the existing insurance company offers. Before expiration (10, 20 or 30 years later) the company/carrier bases the policy on the original health of the client when they applied. If you were 50 and healthy and now nearly 65 or 75 and sick you may find out you have options.
This means no medical questions no underwriting and guaranteed convertible. Ponder that for just a moment?
There are thousands perhaps tens of thousand of people today who have an opportunity to convert their policy to a permanent option. (Disclosure Here: This is not for everyone) (Most have no idea it’s an option)
They will convert that policy and make the premiums until you die, let it lapse. Or…
The client will be paid whatever the market (an investor) will pay for it and can do whatever they want with that money. (Typically, for the investor this is only profitable if you are looking at a 3 to 6-year period before the client dies. Some can go out to 10 years maybe longer depending on the situation)
Look at the example of myself.
I today as of writing this article am 53 years old. If I were to take out a policy for $1,000,000 for 20 years I would spend around $365 a month for that policy. Roughly or around $4400 a year or $87,000 over that 20 year period. If 6 months or 3 months before the policy comes to expiration I could depending on my health get 10% or 15% or even possible 25% of the death benefit from a life settlement company. Thats between $100,000 and $250,000 to spend my last few years. Depending on my health I could go travel or I could leave it to a charity like my local church or I could use it to cover the cost of nursing care. This can be a compassionate option for all of those people in there final days.
Why would a Client sell his/her policy?
A policy can be sold for any reason. (Many reasons)
The need for insurance sometimes goes away! Some reasons could be the client can no longer pay premiums. The spouse it was meant to protect died before the client. No children or family wants to pay the premiums to keep the policy in force.
Sometime the client has limited choices. Usually 3 (three).
- Let the policy lapse and get no benefit from the policy (usually term)
- If cash value is available, they can ask to get the cash policy value OR…
- See what the MARKET will pay for the policy
Again, he or she could use the money from the policy or from the sale to buy an annuity that pays them income until they die. Maybe they take a vacation of a lifetime that they never had a chance to. Possibly they could buy a long-term care policy to cover expenses that 3 out of every 4 Americans will experience. They may also buy other life insurance if they are insurable. Some might even retain a portion of the policy death benefit to go to heirs.
One Example
This is an example of an actual client: Let us call him Mr. X
Gentleman had a 10-year term policy for $500k death benefit. He was in the 9th month of the 9th year with 3 months to expiration. The ink was gonna disappear. (Meaning the policy would cease to exist)
He was age 69. Couple forms were filled out by the agent to help his client. The opportunity was underwritten.
Reverse Underwriting is a medical exam to determine life expectancy of a client.
This helps the investor to determine how much the Market (potential investors) are willing to offer the potential client for the policy. The client signed the conversion form and signed over the rights to the policy once he agreed to the payout.
The Result
Client received $45,000.00 for his nearly expired $500,000.00 policy. About 10% of the death benefit. The investors (potentially you) gave money through the company which paid the client. Also, premiums paid by the settlement company until the client died. The client wins and so do the investors.
Another example was a client with 2 policies totaling nearly a million dollars. He was retired with a limited income at age 76 years old and could no longer make the premiums. He was told by the insurance company that if he surrendered the policies to them, he would get $90,000.00.
After he filled out the papers and was underwritten it was determined that he had a life expectancy of 6 years
He ended up getting $370k for those 2 policies. As you can see getting nearly $200,000 more than the cash value makes more sense to the client. I love insurance companies, but I do not feel bad for them. They make a handsome living selling you the consumer a policy as they should. However, the client deserves to get the absolute best as well.
Every situation is different and if there are kids involved and its more to their benefit for him to keep the policy then they can get a loan to buy out the client and pay the premiums but if they can’t it may make more sense for the client to enjoy what time they have left on this earth. My job is to help my client and know what options they have available to them.
The Risk
In the 1st example (with Mr. X) the client’s life expectancy was about 20 to 22 years. Obviously, he could die sooner or later than expected. The buyer was a bank and they took the policy paid the premiums and were the beneficiary. All the buyers are institutional meaning they individual investors do not know about the client, but they do know the factors that consist for them make money.
Usually the investor is getting double digit annual returns but 50 to 60% guaranteed of their investment. If you invest $100,000 and got back $160k. Most pay the investor on average in 3 to 6 years. That is a whole lot better than any bank and many other investments.
If the life expectancy is around 12 to 15 years today you would likely get a small settlement of maybe 5 or 10% of the death benefit. So, the settlement is greater based on the time and the size of the policy death benefit. If life expectancy is only 4 or 5 years, then a client could possibly get 30% to 40% of the death benefit.
There are many buyers in the Market usually made up of companies that have possibly hundreds or even thousands of potential settlements in a portfolio of many life insurance policies.
If a policy is less than around $200,000 there are not usually any investors but over the years most people are purchasing policies from $250,000 up to several million. Thus, a market for investors has now emerged.
Is the Client Happy?
Typically depending on the age and health of the client the client could receive as much as 50% of the death benefit but most of the time much less. The average varies but on average the client gets about 20% of the death benefit. No matter the situation you are in you may have a family member, spouse or parent, maybe a friend or someone at your church that is looking to see if they can benefit by cashing out and getting more than whatever cash is in there policy.
Most investors who invest with these carriers are pleased. When looking back at the many clients who passed on their books, the life expectancy was usually within 4 months of the person’s actual date of death.
They take a risk based on a person’s age and profile and can determine based on tables of 1000 or 2000 others with the same profile how long they will live. The statistical probability is so well determined that this makes for a very secure and safe place to place for your money and for your future earnings.
Like anything the risk to the investor is that the person may live much longer than expected. Thus you will always get a return but it might take longer than what you planned on. If you have questions and want to respond via email contact me below. If you want an idea of costs for Term Insurance please click the green button below. It takes 1 to 3 minutes to quote and about 10 to 15 minutes to apply if you choose to with this A+ rated carrier.
If you are an agent and want to find out how to offer this opportunity to your clients or to someone you care about, please don’t hesitate to contact me at the email below and see if this might suit that client, friend or family member you know needs something like this.
Please email ac@jeningsinsurance.com