Life settlements provide value and cash proceeds for life insurance in those situations where the insured’s needs have changed from the time when the policy was first purchased. In some situations, selling a policy now through a life settlement can result in similar value to the eventual death benefit.
Consider this case study and comparison.
- Policy Death Benefit = 1,000,000
- Annual Premiums = 35,000
- Insured’s life expectancy = 7 years
- Potential Value through life settlement= 300,000
- Cost of future premiums = 245,000 (7 x 35,000)
- Interest on premium payments = 120,000
(time value or interest on premiums)
- Future value of life settlement after 7 years = 600,000
(using the rule of 72)
- Future Value of Life settlement plus cost savings of annual premiums = 965,000 (Future premiums 245,000 plus interest on premiums of 120,000 plus 600,000 future value of life settlement payment of 300,000)
If you consider the potential liquidity needs of a policy holder who wants to sell the policy, a discount of 35,000 (Death benefit of 1,000,000 less total value of life settlement of 965,000) is a small price to pay for acquiring cash now during the policyholder’s lifetime which can be accessed to finance health care costs, finance grandchildren’s college expenses or simply have the flexibility to spend money of enjoying retirement years!
Are you a professional advisor with client’s who have life Insurance or a policyholder with an unwanted policy? Call us today to discuss your life settlement options!
Dan A. Penning
Life Settlements Specialist
Professional Life Settlements Plus
