When It is Time to Trash a Policy
It was worthless. Well at least that is what Mr. Greene* said.
He had obtained a life insurance policy as part of his compensation package while at his previous firm. The $5 million death benefit was meant to insure his salary (for his wife’s benefit), and the employer had paid the premium for the first 5 years. Now that he was no longer with the company (and the 5 years was up), he had to pay $200,000 per year to maintain the policy. He didn’t need the policy anymore, and he didn’t want to pay that kind of cash every year. So he was going to let the policy lapse, and be done with it. Thankfully his financial advisors saw that there could be some benefit to Mr. Greene if they looked into a life settlement.
Like Mr. Greene, some people may find that they don’t need as much life insurance now that the estate tax exemption limit has increased. For example, they may have had a policy in order to use the death benefit to pay estate taxes on a portion of the estate. But even when a life insurance policy has no value to the owner, it may have value in a secondary market; where institutions may choose to purchase the policy and pay the premiums in exchange for being named the beneficiary.
The only issue in Mr. Greene’s case was that he had a life expectancy that was higher than most companies were willing to risk. As the due date for the premium approached, it seemed like nothing could be done.
The client’s financial advisor reached out to Axia Global for support, and our team was able to determine that there was a positive cash value in a shadow account linked to the policy. This was the game-changer. Suddenly bids for the policy started to come in, including an offer that would give Mr. Greene $420,000 in cash. With less than 24 hours left until the premium due date, and Mr. Greene unwilling to pay anything, it still seemed like the deal might fall through. But our team was able to negotiate with the purchaser, who agreed to pay the premium in order to keep the policy open long enough to complete the settlement process.
At no additional cost to him, Mr. Greene walked away $420,000 richer, which he was able to use to fund the insurance policy that he did want! Plus a brand new custom Porsche.
How It’s Done
How was Mr. Greene able to cash in on nearly half a million dollars from a life insurance policy that he was about to walk away from? Here are a few factors:
- Obviously, he had a whole life insurance policy to begin with, which at one point suited his needs. We discuss the benefits of life insurance in detail here.
- He had a financial advisor who was willing to work within a trusted team to do what was best for the client.
- The team was well-informed about the life settlement market and what would demonstrate value for the purchasers. Because of this, they were able to secure a buyer where there previously was none.
- He was aware that the policy was going to lapse. Surprisingly, some people fail to manage their policies and are unaware when a premium is due or about to lapse. One way to stay ahead of the curve, especially if you have multiple life insurance policies is to use a secure, online user interface to manage your policy information. This best practice ensures that users are alerted when premiums are due, with enough advance notice to take action as needed. In Mr. Greene’s case, action also meant money in his pocket.
- The team was able to dig in and get additional details about the account to find the hidden value. In the case where additional details regarding the policy are needed, an automated tool (mentioned above) could be used to integrate with the policy data stored within the insurance company’s database, enabling details (such as shadow account information) to be more readily available.
Having a knowledgeable and trustworthy team on your side, using the right tools, can make a measurable difference in your financial life. If you are interested in finding out how Axia Global can help with a life settlement case, or other life insurance issues for you or your affluent clients, feel free to give us a call.
About Axia Global
J. Michael Roney, founder of Axia Global, has worked alongside the best financial and legal professionals in the field for decades. He has written a book on wealth preservation, and his calling is to craft profitable solutions for even the most complex wealth preservation and estate planning cases. Together, the team at Axia Global has nearly a century of combined experience in the financial services sector.
Note: the statements above should not be considered as financial, legal or tax advice, but ideas for careful consideration with your trusted financial advisors and lawyers. For current tax or legal advice, please consult with an accountant or an attorney.
*His name has been changed to protect his privacy.