Life Settlement Case Study
One large life settlement 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 With the executive’s retirement, the policy’s original purchase had become outdated, and the high premium payments were in fact a liability to the business.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.
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