Life Settlements Are An Effective Estate Planning Tool

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5 Life Settlement Scenarios That Make Sense to Seniors “An informed senior is an engaged client.” This presentation is an educational resource for professional advisors brought to you by:

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Financial advisors now have a new educational tool to help senior clients understand the benefit of life settlements for unwanted policies.

Transcript of Life Settlements Are An Effective Estate Planning Tool

Page 1: Life Settlements Are An Effective Estate Planning Tool

5 Life Settlement Scenarios

That Make Sense to Seniors

“An informed senior is an engaged client.”

This presentation is an educational resource for professional advisors

brought to you by:

Page 2: Life Settlements Are An Effective Estate Planning Tool

We encourage advisors

to make this informative

presentation part of

your “client tool kit.”

• Host a coffee for senior clients in your office

and share these “5 sensible solutions.”

• Conduct a workshop to educate professional

colleagues on why a life settlement makes

sense for clients with policies that are no

longer needed, wanted, or affordable.

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What is Life Settlement?

• A life settlement is the sale of an insurance

policy to an institutional investor for more than

its cash surrender value, but less than its net

death benefit.

• A typical life settlement involves a $1 mil. policy

on a senior in their 70s with a life expectancy of

12 years. (Source: A.M. Best)

• Life settlements offer seniors a viable solution

for unneeded or unwanted life insurance policies,

versus allowing policies to lapse.

Page 4: Life Settlements Are An Effective Estate Planning Tool

A. M. Best, a US-based rating agency for the

insurance industry, summarizes the most

common reasons to sell a policy.

Page 5: Life Settlements Are An Effective Estate Planning Tool

Why Educate Senior Clients

About Life Settlements?

1. Because 80% of policies are allowed to lapse.*

2. Because 82% of seniors are not aware that a

life settlement is a viable alternative to lapse.**

3. Because it’s the right thing to do for your

valued clients who depend on you for counsel.

*Source: Insweb.com

**Source: ICR Market Research, September 2013

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SCENARIO #1

Financing Medical or Long-Term Care

Expenses for Policy Owner or Spouse

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SCENARIO #1

• Financing medical expenses or long-term care

is the No. 1 reason that most seniors sell their

life insurance policies.

• A 2013 report issued by the U. S. Commission

on Long-Term Care stated that the need for

long-term care will grow dramatically over the

next 20 years as the population ages.

• The U. S. Dept. of Health & Human Services

endorses life settlements as a solution to help

cover long-term care expenses.

(Continued on next page)

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SCENARIO #1 (Continued)

• 40%: The percentage of seniors who reach

age 65 who will enter a nursing home during

their lifetimes.*

• 2.44 years: Average length of stay for current

nursing-home residents.*

• $73,000: Median annual rate, nursing-home care

in U.S.*

*Source: Morningstar (Continued on next page)

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SCENARIO #1 (Continued)

• The rising cost of nursing home care is

motivating seniors to look at all their financial

options, including surrendering policies.

• According to Insure.com, life settlements

provided an average of 409% more

cash to consumers than what they would have

received by surrendering their policy.

• Informing your senior clients about the optionof a life settlement is the sensible thing to do.

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SCENARIO #2

Optimizing the Asset Value of Key-Person Life

Insurance When Selling the Family Business

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SCENARIO #2

• The purpose of key person life insurance is to

help ensure the financial stability of a company

when an owner or “key person” dies.

• When a key person retires, the company often

cancels the corporate owned policy (COLI) and

accepts any remaining cash surrender value.

• Life settlements offer an attractive alternative

that enables the company to receive a cash

payment far beyond the cash surrender value.

(Continued on next page)

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SCENARIO #2 (Continued)

• Some term life insurance policies

with a conversion option to

permanent coverage may qualify

for a life settlement.

• The increase in the number of

small business owners who plan

to retire over the next 10 years

presents an opportunity for advisors to counsel

business clients now about the advantages of a

life settlement.

70% of the 12 mil.

privately owned

businesses in the

U. S. will change

hands as baby

boomers retire in

the next decade.

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SCENARIO #3

Salvaging a Trust-Owned Life Insurance

Policy on the Verge of Lapsing

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SCENARIO #3

• Trust-Owned Life Insurance (TOLI) is often

considered the cornerstone of an estate plan.

• TOLI enables the trust to provide a cash

inheritance to survivors, to cover estate taxes,

liquidate debt, or create a legacy through

charitable gifts.

• But because of its long-term investment horizon

to maturity, TOLI is often overlooked by those

monitoring or managing the overall trust.

(Continued on next page)

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SCENARIO #3 (Continued)

• Approximately 40% of life settlement

transactions involve TOLI policies.

• The percentage of TOLI policies at risk of

lapsing is expected to increase, due in large

part to the low interest rate environment which

is jeopardizing the expected earnings potential

for universal life policies.

• Insurance advisors have an opportunity to

help clients optimize the value of these at-risk

policies by recommending a life settlement.

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SCENARIO #4

Paying Off

Personal Debt or

Helping Grandchildren

with Student Loans

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SCENARIO #4

• 70% of 2014 college graduates are leaving

the campus with student loan debt.

• In 2014, college graduates have racked up an

average student loan debt of $33,000.

• $1 .5 TRILLION in student loan debt exceeds

the nation’s $900 billion credit card debt.

(Continued on next page)

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SCENARIO #4 (Continued)

• Legacy Trends: Some estate planning attorneys

are incorporating distribution provisions in

Family Trust documents that require the cash

assets in the Trust to be used by heirs to pay

off student loan debt before they can receive

any remaining funds from the Trust.

• Grandparents who do not have an estate plan

or a Trust can create a “lasting legacy” by using

the proceeds from a life settlement to pay off

their grandchildren’s student loan debt.

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SCENARIO #5

Retained Death Benefit

Reducing the

Death Benefit of a Policy

to Provide Cash Flow

for Retirement

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SCENARIO #5 (Continued)

• A retained death benefit is an ideal solution for

seniors who wish to eliminate premium

payments on an existing life insurance policy,

while retaining a portion of their death benefit.

• The policy owner receives a lump sum cash

payment, keeps a portion of the death benefit,

and is no longer responsible for premium

payments.

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SCENARIO #5

• Previous studies have shown that approximately

80% of life insurance policies will lapse.

• A primary reason for letting policies lapse is the

inability to afford premium payments.

• Another reason for the high lapse rate is the

fact that many seniors are not aware they

have other options, including a “Retained

Death Benefit.”

(Continued on next page)

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SUMMARY

• This presentation was designed to be an

objective source of information for advisors

about the benefits of life settlements for

seniors who qualify.

• Professional advisors have a duty to inform their

clients by presenting all the facts.

• An informed senior is an engaged client!

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THANK YOU!

For more information, or to pre-quality a case, contact us:

1-888-335-4769

Jeff Hallman, Co-Founder Scott Thomas, Co-Founder

[email protected] [email protected]