THINK SALE - NOT JUST SURRENDER
A market has been created for the SALE of existing life
insurance policies. Until now, a policy owner who did not want to continue
keeping a policy in force had only one choice: to surrender it for its
cash value. With term insurance, that value is zero. If the insured has
12 years or less life expectancy and the premiums are low, the owner may
be able to obtain substantially more for this policy by selling it to a
third party. The owner receives a lump sum. The third party now pays the
premiums and ultimately collects the death benefit. In most cases, the
owner of the policy has already decided to surrender the policy because
it is no longer wanted, needed or affordable. This transaction merely allows
the owner to get the most for the policy.
THE OPPORTUNITY
Many cases come from closely-held companies where the
partners have funded a buy-sell with life insurance, but they are now selling
the company, which makes the life insurance surplus. Other cases come from
a bank's requiring life insurance before granting a mortgage on a building.
When the property is sold, the owners often find the life insurance too
costly or just unnecessary. Still other cases come from old policies with
large loan balances and insured individuals who can't afford continuing
premiums and/or loan repayment. These policies are usually surrendered.
In one case, the company received $1.3 million by selling a policy that
had a cash value of only $22,000. Another company received $440,000 by
selling a term policy with no cash surrender value and, since the policy
was no longer needed, would have merely been allowed to lapse by the insured.
THE PROCESS
Underwriting is accomplished based upon medical records
only. No exam or interviews are required. If the underwriting determines
that the insured has an acceptable life expectancy (usually 12 years or
less by actuarial tables), and the cost of maintaining the insurance is
low enough, then an offer is made. This process takes about four weeks,
less if current medical and insurance records are provided. Favorable tax
status, including exemption from gross income or capital gains treatment,
may be available depending on the life expectancy of the insured.
OUR ROLE
Through our affiliated company, Equinox Business Services,
LLC, we have developed a professional relationship with a marketing and
insurance brokerage services firm specializing in creating markets for
the sale of existing life insurance policies by owners who are going to
surrender the policies as surplus. Through them we're able to prepare and
take cases out to multiple funding sources to assure the best offer is
found.
