A Case For Life Insurance Settlements
This is a real life example of a case we worked at MEG Financial and illustrates why life settlements are a viable part of life insurance planning.
In 2003, we worked with prospect Scott Booth who was seeking term life insurance to cover his mortgage and to get him into retirement. He was 63 at the time, had very little debt other than his mortgage and would receive a pension at retirement which could come as early as age 65.
During our fact finding, we uncovered that Mr. Booth had a 10 year term life insurance policy for $150,000 and was paying $1455 annually. He had 6 years left on his level term plan. At first glance, he was overpaying for his insurance and really needed more coverage and to extend his term. We qualified him medically and determined that at standard non tobacco rates we could get him $300,000 of 15 year level term with a quality company for $2,400 a year. We applied and Mr. Booth was eventually approved at the standard rate class and quickly accepted the policy.
Mr. Booth was happy as his wife was protected, his mortgage was covered and the new insurance would cover him well into retirement.
Service is Key to Building Relationships
Over the next 4 years, our office provided annual reviews to Mr. Booth. We handled service related issues and sent a quarterly newsletter as well as Christmas and Birthday cards to Mr. Booth. In other words, we maintained a professional relationship with him.
A Life Settlement Possibility?
In 2007, Mr. Booth called in to our office expressing that he no longer needed the insurance. He was no longer working and his mortgage was almost paid off. He wanted to see about reducing the insurance and lowering his cost. We told him that we would follow-up on his options to reduce his insurance and get back to him. We subsequently called the insurance company and found out that we could reduce his face amount.
We spoke to Mr. Booth and told him that we could in fact reduce the face amount of his policy but that he might have an opportunity to sell part of his $300,000 policy ($250,000) in the secondary market via a life settlement. We told him that it could take a couple of months to do the due diligence to find out if there were any interest parties. We discussed maybe a $5,000 to $10,000 possible settlement for him because he was only 67 years old and in reasonable health. We also told him that he may get no offers and that he would have to pay premiums on his existing insurance while we shopped. He agreed to allow us to proceed with shopping the secondary market and he completed an application and we submitted it for underwriting.
Over the next 12 weeks (yes 3 months) our office worked diligently to gather medical records submit them to the life settlement broker to obtain a life expectancy for Mr. Booth. During this time, we kept Mr. Booth up to date and while he was concerned about the time, he was hopeful of the potential for a favorable offer. Even $5,000 would be a great deal for him because the coverage was no longer needed and he was simply going to drop the insurance.
Fourteen weeks into the process, and after many many “no offers” due to Mr. Booth’s age of 67 and his lack of major health issues, we got a call from the settlement broker suggesting that we had an offer from a funder for $43,400. Wow! That was outrageously more than we had expected as we were hoping for any offer.
We called Mr Booth and as anyone might imagine, he and his wife were in disbelief. They quickly agreed to accept the offer and sold $250,000 of their $300,000 policy for $43,400. With the proceeds, they were able to payoff their mortgage and had a significant amount of money left over to use at their discretion. To see actual comments from Mr. and Ms. Booth, see Scott Booth Endorsement.
The moral of the story here is that life settlements are a great tool if the situation fits. Unwanted or unneeded life insurance polices may be unrealized assets. If you have a life insurance policy that you no longer need for whatever reason, and you meet the qualifications for a life settlement, you never know what opportunities that you may have unless you shop the secondary market. Scott Booth and his family definitely benefited from considering all of his options and if you are in a similar situation you may be able to as well.