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The ABCs Of Life Settlements

THE LIFELINE PROGRAM®

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²  It is the sale of an existing life insurance policy to a third party for fair market value; it exceeds the cash value offered by the insurance company.

²  Grigsby v. Russell (1911) established a life insurance policy as private property, which may be assigned at the will of the owner

²  In most cases, a life settlement will pay the insured a large percent of the premiums they have paid in over the years, which is more than the cash value of the policy.*.

²  Currently, 42 of the 50 states (and Puerto Rico) regulate life settlements, covering more than 90% of the United States population.

WHAT IS A LIFE INSURANCE SETTLEMENT?

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²  A Viatical Settlement is the sale of in-force life insurance policy to a 3rd party by terminally ill insured

²  The insured typically has a life expectancy of 2 years or less

²  Transaction terms are reflective of each states’ definition of a chronic or terminal condition.

VIATICAL VS. LIFE SETTLEMENT

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²  Reverse Mortgage is a loan that must be paid back once the homeowner no longer occupies the home.*

Ø  Life Settlement, the sale of personal property; NOT a Loan. No restrictions or requirements to be paid back

²  Size of Reverse Mortgage loan is determined by borrower’s age, the interest rate, and home value. Amount may be capped by FHA loan limit; determined by city/county

Ø  Life Settlement, No caps on the amount of money that can be raised.

The typical age for both Life Settlements and getting a Reverse Mortgage is 75.

REVERSE MORTGAGE VS. LIFE SETTLEMENT

Reverse Mortgage Stabilization Act of 2013 was amended. Changes went into effect, September 30, 2013

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In 2007, Paul Rutledge, former President of Transamerica Reinsurance, recognized the long term advantages for both the insurance buying public and life companies, noting that a life insurance policy is a financial instrument to be treated like any other asset in a consumer’s financial plan. ON MAY 23, 2013, THE TEXAS LEGISLATURE PASSED THE NATION’S FIRST MEDICAID LIFE SETTLEMENT LAW, giving seniors the ability to apply proceeds from the sale of their life insurance policy to long-term care. Using settlements to pay for long-term care could save states millions of dollars in Medicaid costs per year.

*Sandra Block, January 2013, “Cash From Your Life Insurance, www.Kiplinger.com

LIFE SETTLEMENTS: RESISTANCE – NOW SUPPORT

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LIFE SETTLEMENTS ARE RECOGNIZED AS A VALUABLE FINANCIAL PLANNING TOOL BY…

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LARRY GRILL ET AL V. LINCOLN NATIONAL LIFE INSURANCE COMPANY FAILURE-TO-DISCLOSE California couple, trustees of the Grills’ estate, filed a lawsuit in California Federal District alleging that they lost money because an agent of Lincoln National Life Insurance Co. failed to inform them of the life settlement option.

The Grills’ were struggling to pay premiums on a $7.2 million policy and were forced to reduce their coverage and face amount to $2 million.

They allege that Lincoln National instructs its agents and independents to conceal the life settlement option because omitting the information generates greater profits for the insurance carrier.

HELP YOUR CLIENTS AVOID MISDIRECTION

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²  Lifestyle changes make the policy no longer desirable; paying unnecessary premiums; policy holder is “over-insured” (e.g., divorce, bankruptcy).

²  Estate changes eliminate the need for a policy (e.g., smaller

estate reduces estate tax to be paid out of death benefits). ²  Sale of a business or changes to executive hierarchy (i.e.,

policy was designed to protect company from financial loss).

²  LONGEVITY. Liquidity needed to fund long-term care costs.

PEOPLE SELL FOR MANY REASONS

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A term once used in reference to especially long lived members of a population.

Now, synonymous with life expectancy. A recent survey by Pew Research found that 83 percent of Americans consider their “ideal lifespan” to be 100 years or less. In addition to quality of life after 100, concerns over longer lifespans are compounded by the fact that we have less retirement savings to rely upon.

LONGEVITY: PREPARING FOR A LONGER LIFE

Pew Research Center survey March 21-April 8, 2013: www.pewforum.org/2013/08/06/living-to-120-and beyond.

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There are a wide variety of longevity based financial products, from life insurance and annuities to life settlements and reverse mortgages. Life settlements were the first longevity based financial product of the new generation.

NO ONE WANTS TO OUTLIVE THEIR MONEY, AND LIVING FOREVER LOSES ITS LUSTER WHEN YOU REALIZE THAT YOU’RE GOING TO BE SPENDING THE LAST YEARS OF YOUR LIFE STRUGGLING TO MAKE ENDS MEET.

LONGEVITY CONUNDRUM: WILL RETIREMENT LAST

Conning Research and Consulting, Inc. (2008), Life Settlements, New Challenges to Growth

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²  70% of people at age 65 can expect to pay for some form of long-term care. ²  69% of people aged 90 or older have a disability.

²  24 million Americans are thrust into the position of full-time caregiver. ²  37% of caregivers quit their job or reduce their hours to care for

someone aged 50 or older. Longtermcare.gov infographic: It’s Coming, Are You Ready? | h"p://mkt.medline.com/clinical-­‐blog/files/2013/07/longterm-­‐care_51cc77516d63a_w1800.jpg

US PENSION SYSTEM: It will cost an additional $115 BILLION if the average US lifespan increases by one year over current projections.

LONG-TERM CARE

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Contrary to the 2010 Conning & Company Life Settlement report stating 4 out of 10 seniors let life insurance policies lapse… A recent study indicates that lapsing numbers are more than 50 percent.

SURVEY SAYS: MOST SENIORS LET INSURANCE LAPSE

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²  Personal Savings?

²  Long-term care insurance?

²  Medicaid Spend-Down?

²  Other options?

HOW WILL CLIENTS FINANCE THEIR FUTURE?

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Life insurance is a financial tool…a protective blanket. We bought it to protect our families from financial changes that they may face upon our demise.

LIFE INSURANCE

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1.  Take cash value and cancel their policy.

2.  Take a “paid-up” policy for a much smaller amount.

3.  Let the cash value pay the premiums for a period of time and then let the policy lapse.

4.  Allow the term policy to expire/lapse without converting the policy.

MOST OF YOUR CLIENTS BELIEVE THEY HAVE ONLY FOUR OPTIONS

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ARE CLIENTS PREPARED ‘FINANCIALLY’?

²  In 2013 the percentage of Baby Boomers confident in their financial preparedness for retirement dropped from 44% to 35%.

²  Of those calculating a retirement savings goal, 76% are factoring in the cost of health care.

²  One in 10 Boomers prematurely withdrew savings from a retirement plan during the past year.

²  42% cite economic downturn as a reason for delaying retirement.

²  Boomers planning for retirement with the help of a financial professional are more than twice as likely to be highly confident in their retirement plans.

http://myirionline.org/docs/default-source/research/boomer-expectations-for-retirement-2014-web-version

It’s time to re-examine financial needs for the long road ahead.

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WHAT’S IN IT FOR PRODUCERS?

*Consult a life settlement professional for state regulations.

²  BRING ADDED VALUE TO YOUR CLIENTS: Prevent future unnecessary premium payments, reduce lapse rates, create new capital to finance clients’other endeavors.

²  STRENGTHEN CLIENT-AGENT RELATIONSHIP: Keeping up to date on changes in the industry and providing your clientele with complete information makes you a credible source, taking you from sales professional to trusted consultant.

²  INCREASE ASSETS UNDER MANAGEMENT: Proceeds from a life settlement are unrestricted*, and can be repurposed to broaden financial planning strategies and applied to other “commissionable” products.

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UNDERSTANDING THE POTENTIAL

²  The total outstanding dollar value of life insurance policies is $27 trillion.1

²  It is estimated that 90% of all

life insurance policies lapse.2

²  The total market potential for

senior life settlements will grow from $114 billion in 2014 to more than $140 billion in 2018.3

1.  ACLI 2008: 2008 Life Insurers Fact Book 2.  Life Insurance Settlement Association: www.thevoiceoftheindustry.com 3.  Conning Research & Consulting (2012)

0  

50  

100  

150  

200  

2014   2015   2016   2017   2018  

NET MARKET POTENTIAL $US BILLIONS FACE VALUE

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*Consult a tax professional with regard to life settlement taxation regulations. *Consult a tax professional with regard to life settlement taxation regulations.

²  SENATE BILL S. 2048, introduced by Sen. Robert Casey (D-Penn.) to clarify the taxation of Life Settlements, is expected to be reintroduced this year. Until that happens, Revenue Ruling 2009-13 is still in control.

²  REVENUE RULING 2009 – 13, The IRS ruled that the basis for a policy sold by a non-investor (policy holder) is cumulative premiums minus cumulative cost of insurance (COI) changes.

²  RULING DOES NOT DISTINGUISH between life settlements and non-life settlement transfers of sales and can be confusing for insurers.

²  MOST IMPORTANT, FOR INSURED…Instruct your clients to request the cumulative COI charges from the insurance company. They should not wait until after the transaction closes.

²  MOST IMPORTANT, FOR PRODUCERS…consult your tax professional to learn more about life settlement taxation.*

Short Answer: Yes, however…

ARE LIFE SETTLEMENT PROCEEDS TAXABLE?

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THE LIFELINE PROGRAM®  

…A LIFE CHANGING SOLUTION  

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THE LIFELINE PROGRAM®

²  Founded in 1989…We are the oldest, most experienced Life Settlement provider for more than 24 years – Settled more than $1.7 billion in policies

²  Unparalleled industry reputation for quality, thoroughness of transaction, and transparency

²  Providers of customized turnkey solution. Visible or as Invisible as you need

²  Adherence to sound business practices to ensure professional, private transaction and the proper handling of HIPAA information

²  Leading industry resource for the evolved client. First to use social media and other innovative, interactive tools to educate consumers and savvy financial professionals on life settlements as an option

²  On-site funding entity, Lifeline Capital Management. Proprietary equity capital enables in-house purchasing

WHO WE ARE…

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WHO WE ARE NOT!

THE LIFELINE PROGRAM®

Lifetime (TV Network): American cable and satellite television channel

Life Alert Emergency Response: Provides services that help elderly contact emergency services.

Lifeline: Affordable telephone service for income-eligible consumers

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AWARD WINNING & NATIONALLY RECOGNIZED BRANDING*

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AWARD WINNING & NATIONALLY RECOGNIZED BRANDING*

²  National Press: WSJ, NYTimes, MSN.com, Bloomberg Businessweek, Money, Thestreet.com, Kiplinger’s, USA Today, NPR, Life & Health Advisor, CA Broker

²  National Media: Fox Business – Varney & Co, The Today Show, Access Hollywood, CBS News, Best Deals TV, NBC News, Daily Buzz, Atlanta & Co, etc.

²  Social Media: Huffington Post, FB, Twitter, YouTube, LinkedIn, Pinterest, I’m Still Hot, video featuring Betty White went viral – 2.1M fans and climbing…

²  Advertising: Insurance News Net, Retirement Advisor, LifeHealthPro, Journal of Financial Services, FA (Financial Advisor), Delta Sky magazine, local newspaper, etc.

²  Other Mediums: Direct Mail, E-blast, Webinars, etc.

*Information represents only a partial list of programs and marketing collateral

BRANDING AD BETTY HOT VIDEO

WHITE CHRISTMAS PHOTO CAR BROCHURE COVER

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CASE STUDIES  

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CASE STUDY # 1 PAYOUT TO OWNER: $375,000

INSURED MALE, 80 YEARS OLD POLICY UNIVERSAL LIFE YEAR POLICY ISSUED 2008 FACE AMOUNT $2,000,000 CASH VALUE $0 SURRENDER VALUE $0 LIFELINE SETTLEMENT $375,000

RETIRED CORPORATE ATTORNEY WAS OVER-INSURED. USED PROCEEDS LIFE SETTLEMENT TO CAPITALIZE ON NEW INVESTMENTS AND VISIT HIS CHILDREN AND THEIR FAMILIES SEVERAL TIMES A YEAR.

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CASE STUDY # 2 PAYOUT TO OWNER: $515,000

INSURED MALE, 73 YEARS OLD POLICY UNIVERSAL LIFE YEAR POLICY ISSUED 2003 FACE AMOUNT $2,000,000 CASH VALUE $250,000 SURRENDER VALUE $178,052 LIFELINE SETTLEMENT $515,000

COULDN’T AFFORD TO PAY HIGH PREMIUM; NEARLY $40,000 ANNUALLY FREE OF PREMIUM BURDEN, INSURED WAS ABLE TO SEEK OUT OTHER INVESTMENTS THAT WERE BETTER SUITED TO HIS CIRCUMSTANCES.

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CASE STUDY # 3 PAYOUT TO OWNER: $1,440,000

INSURED MALE, 73 YEARS OLD POLICIES (3) TERM, CONVERTED TO GUARANTEED UNIVERSAL LIFE YEAR POLICY ISSUED 2009 FACE AMOUNT $3,000,000 DEATH BENEFIT CASH VALUE $7,874 SURRENDER VALUE $0 LIFELINE SETTLEMENT $1,440,000*

*Settlement based on three individual $3 million policies

SUCCESSFUL BUSINESS OWNER WITH THREE TERM POLICIES WITH MINIMUM CASH VALUE IN HIS POLICIES AND NO SURRENDER VALUE, THE INSURED USED PROCEEDS FROM LIFE SETTLEMENT TO FUND WIFE’S CARE AT ALZHEIMERS FACILITY.

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GENERAL PRICING GUIDELINES AND PARAMETERS

On average, entire process can take between 60 and 120 days. Based on Lifeline Program® guidelines.

²  Age of insured: 70+

²  LE: 24 months – 180 months •  Based on verifiable clinical diagnoses

²  Policy face amount: $250K – $10M •  Policies below $250K and above $10M will be reviewed on case-by-case

basis

²  Qualified policies include: individual and survivorship universal, convertible term, whole life, group (must be within conversion period).

²  Must have “A-” or better carrier rating from A.M. Best

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NOW THAT YOU KNOW THE ‘WHAT’ AND ‘WHY’ WHAT’S NEXT?

STEP 1 Run the numbers

STEP 2 Reflect on your potential market

STEP 3 Integrate life settlements into your product mix

STEP 4 Build your own life settlement network

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STEP 1 // RUN THE NUMBERS

Producers can get started with an estimate of the potential, based on the current number of clients and the potentially eligible policies therein, and by reflecting on the circumstances of key policyholders.

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STEP 2 // REFLECT ON YOUR POTENTIAL MARKET

Seniors with at least $250,000 in life insurance coverage are prime candidates. Recent changes might make current life insurance policies unneeded or financially burdensome. In your next policy review, with your client, consider a life settlement if the estimated proceeds outweigh the need for coverage.

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STEP 3 // INTEGRATE LIFE SETTLEMENTS INTO YOUR PRODUCT MIX

As with all life insurance products and services, producers who decide to learn more about the life settlement asset class, increase their chances of meeting their business objectives.

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STEP 4 // BUILD YOUR OWN NETWORK

Once you determine that life settlements are an appropriate product for your clients, organize your top-priority client list to submit applications. LET’S GET STARTED!

For Producers, life settlements become an important integrated revenue source. In addition to the trust earned, the process opens opportunities for other planning products with the same clients. There is currently limited competition, as most financial professionals are just awakening to the demographic goldmine of baby boomers and seniors.

Wm. Scott Page 36 7/31/14

TO LEARN MORE, PLEASE CONTACT THE LIFELINE PROGRAM 1 800 252 5282