Recently a CPA referred a client to me who owned a $1.5 million term policy. Rick, the policy owner, had no desire to keep or convert the policy. At 68, his health had only changed moderately and he was in need of some extra cash now, not later (I’m sure we can all relate to that). Fortunately, there was a buyer willing to pay $60,000 gross ($45,000 net) to Rick. He was delighted to get cash in hand for a piece of paper he was perfectly willing and already planning to throw into the garbage!
Another case referred to me was a client named June who had a large $10 million term policy with attractive convertible options. She was turning 75 and was very wealthy. Her children were even wealthier than she was, so there was truly no need for the policy on an ongoing basis. Nice problem to have, right? She was extremely philanthropic and she was ecstatic when I told her that she would be able to donate the $250,000 she received from selling her policy to the charities of her choice.
June and her husband were so happy that they shared their story with one of their neighbors, the Tuckers, who then called us to see if we could do the same for them. They also owned some term policies they were not planning to convert. We were successful in getting the Tuckers every penny they had previously invested in their policies over a fifteen year period—and an extra $100,000 over and above that.
CPAs and other finance professionals have so many clients with term policies, which is why it’s important for them to be aware of the possibilities in this area and the many doors these cash payments could open for those who need money now or for those who wish to be more philanthropic. In short, they should become familiar with what is known as life settlements.
A life settlement involves selling an asset—a convertible term policy, for example—for more than the asset’s cash surrender value, but less than the net death benefit. It can serve as a highly valuable source of liquidity for policy owners who would otherwise surrender a policy or allow it to lapse or for people whose life insurance needs and priorities have changed.
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