A Few Life Settlement Transaction Examples

Case Study Example #1
A 76-year-old man wanted to reduce the size of his estate and was planning on gifting a $750,000 policy to his favorite charity. The charity would take on the premium obligation, but receive the death benefit upon the man's passing. The man would be able to write-off his current CSV (cash surrender value) of $142,189. His financial planner informed him about a life settlement and how this might be a good alternative. Upon review of the insured's policy, an offer of $225,000 was made and accepted by the policyowner. The charity received the cash immediately and was not burdened with any future premium obligations. The insured was able to write off an additional $82,811 for his gift.

Case Study Example #2
Another case involved corporate-owned life insurance totaling $10 million, with a total cash surrender value of $800,000. The insured had a prospective buyer for the company and was not interested in acquiring the policies for estate planning purposes. As such, the policies would have been terminated in conjunction with completion of the sale. Due to the insured's age and change in health (recent bypass surgery,) a life settlement application was made to obtain an offer for the sale of the contracts. The client received a life settlement offer of $3.5 million, representing an increase of $2.7 million above the cash value that would have been received had the policies simply been surrendered.

Case Study Example #3
One large broker recently closed a transaction in which the policyholder received over $800,000 more than the policy's cash surrender value.

A business realized it was making expensive premium payments on a $5 million policy insuring the life of an executive that had retired several years ago. With the executive's retirement, the policy's original purchase had become outdated, and the high premium payments were in fact a liability to the business. The business was considering cashing in the policy for its cash surrender value.

The business had a valuable source of capital. Regarding the policy itself, it was a split dollar whole life policy with a face value of $5 million. There were, however, loans secured by the policy in excess of $750,000. The net death benefit, after deducting for the loans, was $4.25 million. The cash surrender value of the policy was $1.2 million.

The broker was able to obtain a purchase price for the policyholder of over $2 million, thus giving the business $800,000 more than it would have received had it simply surrendered the policy for its cash value. Further, once the business sold the policy, the business did not have to make any more premium payments on the policy. Therefore, not only did the business receive more cash for the policy, but it also absolved itself of the liability of making the burdensomely high premium payments.

*(Sources: Settlement Funding, LLC, Accounting/Servicing Department; Life Settlement Corporation Annual Report filings with the Florida Office of Insurance Regulation)