Success Story: Life Settlement Saves the Day

April 18th, 2017 No comments

The life settlement market is clearly much different than it was 10 years ago but it is still alive and well. The target for finding a qualifying policy is much smaller today but the parameters were likely somewhat unrealistic back then anyway.

Settlements still tend to be success-stories-logosomewhat controversial but with a straight face I will say that I cannot understand why. A legitimate, well understood life settlement is arguably the most consumer beneficial concept I have ever been a part of in my history in the life insurance market. The many, many millions of dollars I have been able to secure for clients who otherwise would have lost millions is astounding.

I know where the controversy comes from and it is generally from one of two camps. The first and lesser is simply a moral issue. Is it reasonable to sell a policy on someone’s life so that a third party has financial upside in an individual’s death? When you stop and think about it (and I have) there is a very long list of people and entities which are on the same side of that ledger for many transactions in life which we never second guess.

An obvious one is an insurance company paying out annuity, long term care or disability benefits. Client dying equals financial upside. Very simple. However, we don’t joke about the Italian actuaries in those scenarios.

The second camp is the insurance carriers themselves indoctrinating their agents against the concept. Those which stop with indoctrinating are the less dangerous ones. Many threaten to summarily fire any representative which brings up the idea. Imagine that; firing a producer for bringing a significantly impactful financial concept to a client; a potentially life changing strategy, because there may be a negative effect on your bottom line. I see it in real life. You can imagine what’s going through my mind when I am watching a sporting event and see said insurance carrier spout their flowery, client first rhetoric.

None-the-less, a success story: an advisor introduced an educational institution to me not long ago. The institution owned a million dollar policy on a long time benefactor. Unfortunately the policy was misunderstood and unmanaged and it is dying before the insured individual. In fact, there is no cash value left and they are paying monthly mortality costs to keep it alive.

In the end we managed to find $500,000 for the institution. $500,000! Instead of zero! Yes, that’s real. $500,000 rather than $0. Tell me to my face that isn’t the “right thing to do” and we’ll see how it goes.

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This material is for informational purposes only and should not be considered tax or legal advice. Any person needing tax or legal assistance should contact their respective advisors.

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Giving a Life Insurance Policy to Charity

April 11th, 2017 No comments

Over the past number of months I’ve had a handful of cases come across my desk involving life insurance and charity. As is so often the case, some of the transactions ended up as case stud-ies in what to watch out for.

I understand that not everyone is going to have the same attitude regarding the intersection of life insurance and the non-profit sector but I am somewhat surprised at the black and white policies of charitable organizations I encounter at times. Many charities and non-profits have a policy to simply cash out life insurance policies which are donated. I can’t think of a more short sighted stance. Of course each and every transaction should be evaluated on it’s own merits relative to required premiums, guarantees, life expectancy, use of money, etc. It also doesn’t help that so many non-profits have been burned by life insurance over the years the same as so many consumers have. For full post, click here…

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Managing Life Insurance Like a Pro

March 6th, 2017 No comments

I often talk about “managing life insurance” and advisors occasionally ask me what that means or looks like. Fair question. There are multiple ways to manage life insurance, depending on what type of contract we’re talking about. Today I have a very simplistic and obvious example which is often overlooked.

The bottom line idea behind managing life insurance is the same as managing anything. To manage something is to handle it in a certain way, typically to improve results. We all try to improve the results of financial transactions by managing them, or hiring professionals to manage them, appropriately. For full post, click here…

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Always Say Never

February 7th, 2017 No comments

Sometimes dealing with the details of life insurance can be overwhelming for professionals who lack expertise in this particular market. I’ve written over and over again that it is more complex than most people realize. I can talk until I’m blue in the face about bringing this up for conversation while highlighting the dramatic mutual benefit to advisors and their clients. Only a minority will get on board.

I can’t give up on trying to urge advisors to do something which is so easy and so benign that they won’t fight it; something with such an outsized benefit that it would be silly not to layer it into every conversation. I think I have settled on something with a threshold so low it is a non-issue. For full post, click here…

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Dealing with Potential Estate Tax Change from a Life Insurance Perspective

January 31st, 2017 No comments

I rarely see someone pass up an excuse to not buy or to drop life insurance.  The talk about possible estate tax repeal is certainly one of those current excuses.  Life insurance is something most consumers feel is a need more than a want.  Without being forced into it by responsibility, a contractual obligation, etc, people are not generally lining up to buy it.  It is clearly something which is usually sold.  Rational people will differ regarding this as a reasonable perspective. For full post, click here…

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An Understandable Life Insurance Analogy

December 22nd, 2016 1 comment

There is such a lack of understanding about how life insurance actually works, not conceptually, but really works, that sometimes it is difficult to have a meaningful conversation because you have to back up so far to establish a point of commonality that it is difficult to do so.  Even when people understand that they don’t fully understand it, they still think they have a fundamental, base level understanding but even that is generally wrong.  It is not easy to destroy a foundation that someone believes is sound. For full post, click here…

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“Salvaging Loss in a Life Insurance Policy” Update

November 16th, 2016 No comments

Last month I wrote about the possibilities of salvaging basis on underwater life insurance contracts by utilizing annuities. The discussion included two different aspects of potential planning opportunities.

The first is the common practice of doing a 1035 exchange from a life insurance contract to an annuity. For policies in a gain position, this allows the gain to be deferred. For policies in a loss position, this may allow the salvage of the basis rather than wasting it. The remaining cash value exchanged into an annuity may appreciate tax free. For full post, click here…

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Success Story: Salvaging Loss in a Life Insurance Policy

October 6th, 2016 No comments

An attorney brought a case to me which was typical in many respects.  There was a portfolio of policies on multiple family members.  Some policies had recently failed and, among the balance of them, some were holding their own and others were rapidly falling apart.

I want to focus on the two policies on Dad.  One policy was projected to lapse in a year and the other in about 5 years.  Thsuccess-stories-logoey are currently burning through roughly $5,000 a month in cash value.  If only I had been brought in a couple of years earlier I could have saved them six figures in lost dollars.  None-the-less, late is better than never.  One policy has surrender value of $157,000 and a basis of $14,000 so the gain is  $143,000.  Another has a surrender value of $46,000 but a basis of $167,000 so there is a “loss” of $121,000. For full post, click here…

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Success Story: Managing Life Insurance – What does that mean?

September 21st, 2016 No comments

Sometimes people ask me what I mean when I say life insurance needs to be managed over the duration of the contract.  Most think that means making sure the premiums are paid but, while obviously important, that’s not really it.

Making sure contributions to a policy are sufficient given a decades long reduction in the interest market is something I talk about incessantly but there is so much more to it.  Here is a very simple example:success-stories-logo

An advisor I work with brought me the policy on his own life. It turned out to be a traditional whole life contract with a well-known carrier.  There was no issue with the company but the policy was deteriorating due to the loan it was carrying.  I don’t recall if the loan was a result of actually pulling money out of the contract or if the loan was created by the policy “auto loaning” itself money to pay premiums which weren’t paid out of pocket.  It doesn’t really matter.  We can even assume the policy owner funded the contract as originally proposed and a sales ledgers might have even shown he could withdraw money with no ill effect. For full post, click here…

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Skyrocketing Premiums

September 7th, 2016 No comments

Recently I read the August 13, 2016 New York Times on-line article “Why Some Life Insurance Premiums are Skyrocketing”. It sounded sensational enough to get my attention and there was a glint of a good message and it made a number of valid points but, based on what I understand about the market, it was also somewhat misleading. The misleading aspect of it centers on the purported cause of the skyrocketing premium increases. For full post, click here…

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