Do You Know The Market Value Of Your Existing, Inforce Life Insurance Policy?
Every day, people are receiving significant cash payments for unwanted or unneeded life insurance policies they thought had no value.
If you are 65 or older, you may have a policy with asset value in the secondary market. The value of policies is measured as a percentage of the face amount. If you have a $2,000,000 policy with a settlement value of 10%, it is worth $200,000. It is fairly simple and straightforward to get an appraisal done to determine your policy’s value.
Please email or call me at 561-869-4500. Visit us at Life Cycle Planners in Boca Raton, Florida.
The secondary market is the market for unwanted life insurance policies – they are usually institutional investors. A good analogy is Carmax. They buy cars from people who don’t want or need them anymore. They specialize in the aftermarket of automobiles. In the life insurance industry, there are buyers who specialize in this market and they are typically the highest bidders.
The state of Florida has made it mandatory for life insurance companies to inform Floridians that they should consult with a professional when contemplating a change:
…“a life insurer shall provide an individual life insurance policyholder with a statement informing him or her that if he or she is considering making changes in the status of his or her policy, he or she should consult with a licensed insurance or financial advisor.”
If you have a policy with cash value, its value is based on it and nothing more. Life settlements may not appeal to everyone. Some people don’t like the idea of strangers having an interest in their mortality. It is a perfectly reasonable position, regardless of the potential financial benefit that might exist. There can be meaningful differences in the offers you receive from the secondary market.
Term life insurance policies may have value in the secondary market.
There may be no cash surrender value in your life insurance policy but there may be great “market value” for a life settlement company. The payment you receive in a life settlement transaction is the market value (see the recent case studies below).
It may be in your best interest to consider selling. The goal is to compare offers you receive against the value in the policy.
More than 90% of seniors lapse policies without knowing about this option. They would have considered a life settlement if they were aware of the process.
Further, 79 percent feel their advisers should have told them first.
Depending on several factors, including age, health and policy type, life insurance policies can be valued as much as 20-30% of the face value. If you no longer want to pay premiums for a policy, there are realistic options to consider.
The reasons to consider selling an unwanted or unneeded policy:
· Receive a higher cash payout than cash surrender value.
· Receive money for a term policy.
· Create cash to fund retirement solutions such as guaranteed income annuities, long term care insurance or life insurance with the installment payout option.
For example, 30 years ago, Dr. Smith purchased $2,000,000 of life insurance to protect his wife and children against the loss of his $300,000 income. He was 46 when it was issued and today, at 75, his children are grown and the need for income protection is gone. With nearly $200,000 of guaranteed lifetime income from annuities, a pension and social security, Dr. Smith feels the policy is unnecessary.
The insurance policy had a cash value value of $90,000 if he walked away. The Life Settlement value was 15% of the face value, or $300,000. The decision was simple in this case.
Unfortunately, each year there are too many people who are still unaware of life settlements or they fail to give it proper consideration.
Potential Disadvantages:
- Life Insurance benefits are usually income tax-free. Some portion of a life settlement may be subject to income tax.
- Paperwork is required to transfer the ownership of the policy.
- Proceeds will benefit the buyers, typically non-family members.
Organizations such as the AICPA and hundreds of esteemed estate planning law firms are on record advocating the benefits of life settlements. Life insurance is an asset with great potential value.
RECENT CASE STUDIES REPORTED IN THE INDUSTRY
– an 88 year old male sold a $2,500,000 John Hancock policy, which netted him $500,000 (cash surrender value was $0),
– an 88 year old male sold a $2,000,000 universal life policy for $1,110,000 (cash surrender value was $218,000),
– a 64 year old female sold a term policy for $20,100 (the face value was $250,000; she kept $50,000 for her beneficiary),
– a 72 year old man sold a $896,450 Transamerica policy for $196,476 (cash surrender value was $94,647),
– a 61 year old man sold a $400,000 Mass Mutual term policy for $220,400.
Please email me at Ted Bernstein or call me at 561-869-4500. Visit us at Life Cycle Planners in Boca Raton, Florida.
Also published on Medium.
