Case Studies
Billions of dollars in life settlement proceeds have been negotiated for senior policyholders.
These seniors have used the funds to:
- Offset living expenses
- Improve their quality of life after retirement.
- Pay for health care expenses and assisted living stays.
- Purchase vacation homes.
- Fund alternative financial planning products like annuities, long term care insurance and even replacement life insurance coverage.
In each case, a life settlement was much more financially beneficial than lapsing, canceling or surrendering the policy.
Below are a few examples in which a life settlement was the best option for the policy owner.
Term Life Insurance about to Expire
Mr. Wilson’s 20-year term policy was reaching its conversion deadline. He was now 79 and was recently diagnosed with coronary artery disease. Mr. Wilson could not afford to convert the policy and letting his $250,000 policy lapse would leave him nothing.
Mr. Wilson’s policy was sold for $75,000. Mr. Wilson was able to recover all of the premiums he had paid into the policy, plus a handsome profit. He used the proceeds to pay off some debts, go on vacation, and add more funds to his retirement portfolio.
Unplanned Health Change
Dave was 76 and had just suffered a heart attack, which left him permanently disabled. His family was unprepared for this unfortunate turn of events. After learning of the Medicaid requirements and the cost of a care facility, the family was unsure how they were going to pay for his care.
Fortunately, the staff at the care facility offered the life settlement option to Dave’s family when they found out about his $500,000 insurance policy. The family soon sold that policy for a $250,000 settlement, and eliminated the premium payments.
These funds covered the three years Dave resided in the facility before his passing. The remaining cash was distributed to Dave’s original beneficiaries.
Additional Insurance Needed
An elderly couple had a $2.2 million policy held in an insurance trust that covered the wife. Due to savvy investing decisions, their estate had increased considerably and now the death benefit on the policy was inadequate. The premiums on this policy were also escalating and the policy was becoming outdated.
Their estate planner decided to sell the policy to help fund the purchase of a $4 million dollar joint survivorship policy. Welcome Funds was able to negotiate a $440,000 purchase price. Since the husband was in perfect health, the premiums on the survivorship policy were very affordable, even lower than the original policy.
Business – Key Man Insurance no longer needed
A company owns a $4 million dollar policy on an executive who had retired 4 years prior. The surrender value was $440,000 and since the company no longer wished to make the $80,000 p/y premium payments, a surrender was being considered.
Their financial advisor immediately recommended a life settlement. The company was offered $880,000 for the sale of the policy and netted $800,000 after taxes, almost doubling the cash surrender value!
* In this case, the surrender value in the policy was lower than the $480,000 cost basis. Therefore, there was a capital gains tax of $80,000 on the $400,000 income generated (the difference between the settlement amount and the cost basis).
