Examples of Life Settlement Transactions

Peachtree has purchased policies for hundreds of thousands, even millions of dollars* where there was no cash value. The following cases represent some of the types  of policies and transactions that exist in the market today.

Case Study #1
A 76-year-old man wanted to reduce the size of  his estate and was planning on gifting a $750,000 policy to his favorite  charity. The charity would take on the premium obligation, but receive  the death benefit upon the man's passing. The man would be able to  write-off his current CSV (cash surrender value) of $142,189. His financial  planner informed him about a life settlement and how this might be  a good alternative. Upon review of the insured's policy, an offer of  $225,000 was made and accepted by the policyowner. The charity received the cash immediately  and was not burdened with any future premium obligations. The insured was able to write off an additional $82,811 for his gift.

Case Study #2
Another case involved corporate-owned life insurance  totaling $10 million, with a total cash  surrender value of $800,000. The insured had a prospective buyer for  the company and was not interested in acquiring the policies for estate planning purposes. As such, the policies would have been terminated  in conjunction with completion of the sale. Due to the insured's age and change in health (recent bypass  surgery,) a life settlement application was made to obtain an offer  for the sale of the contracts. The client received a life settlement  offer of $3.5 million, representing an increase of $2.7 million above  the cash value that would have been received had the policies simply been surrendered.

Case Study #3
One large broker recently closed a transaction  in which the policyholder received over $800,000 more than the policy's  cash surrender value.

 A business realized it was making expensive premium  payments on a $5 million policy insuring the life of an executive that  had retired several years ago. With the executive's retirement, the  policy's original purchase had become outdated, and the high premium payments were in fact a liability to the business. The business was considering  cashing in the policy for its cash surrender value.

 The business had a valuable source of capital.  Regarding the policy itself, it was a split dollar whole life policy  with a face value of $5 million. There were, however, loans secured by the policy in excess of $750,000. The net death benefit, after deducting  for the loans, was $4.25 million. The cash surrender value of the policy  was $1.2 million.

 The broker was able to obtain a purchase price  for the policyholder of over $2 million, thus giving the business $800,000  more than it would have received had it simply surrendered the policy  for its cash value. Further, once the business sold the policy, the  business did not have to make any more premium payments on the policy.  Therefore, not only did the business receive more cash for the policy,  but it also absolved itself of the liability of making the burdensomely  high premium payments.

*(Sources: Settlement Funding, LLC, Accounting/Servicing Department; Life Settlement Corporation Annual Report filings with the Florida Office of Insurance Regulation)

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