LIBI
Case Samples
Replacing an old life policy with a new product
An 83 year old female client had a policy that was in its 8th year. The policy death benefit was $1MM, the surrender value was $60,000, with an annual premium of $40,000. The client was considering surrendering the policy for its cash value, but also wanted the death benefit for her heirs.
Solution:
Her financial planner suggested a life settlement. The current policy was sold for $200,000. A new $1MM policy was issued with an annual premium of $38,000. This was possible due to product improvements and because the client had stopped smoking years prior. The client kept the $200,000 that was tax-free because the cost basis of the policy sold was well over this amount.
Attorney Saves Family Trust
A 65 year old male had multiple policies in a family trust. Two were $5MM, 15 year level term. One was in policy year 5, the other in year 13. The insured suffered a 2nd heart attack. An additional issue - the insured/owner had converted the policy that was in year 5, several months prior, resulting in much higher premiums within the trust. There was not enough funding or gift allowance to keep both policies in force to life expectancy.
Solution:
The client's Estate Planning attorney was aware of life settlements. The non-converted term policy in its 13th year or 15 was sold for enough cash to successfully pay premiums on the converted policy, saving one of the $5MM policies and freed gifting allowances for other planning.
Gift to Charity
A 74 year old male was about to surrender an $850,000 policy for $118,000 and gift the funds to his favorite charity.
Solution:
His insurance agent suggested a life settlement. The policy was sold for $210,000. He gifted the $118,000 to the charity. Between the cost basis of the policy and the tax deduction of the gift, his profit was $92,000
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