You own an asset that other people want.
Do you know what it's worth?
When you're buying a new car, you need
to understand how the price gets marked
up. You can get that information from
services such as the Consumer Reports
New Car Price Report.
When you're selling a life insurance
policy that you own, you need to understand
how the price gets marked down. We give
you that information in a What's
My Policy Worth? report.
Your life insurance policy may be a
more valuable asset than you think. Before
you sell it to someone else, make sure
that you understand all of your options.
Caveat vendor.
What is a life settlement?
A life settlement is the sale of a life
insurance policy to a third-party buyer
for more than the cash surrender value.
If your health is not as good now as
when the policy was issued, or if the
policy is underpriced, a third-party
buyer may be willing to pay more for
your policy than you can get by surrendering
it to the life insurance company.
What will a What's
My Policy Worth? report
tell me?
We give you the information that you
need to make these decisions:
Should I sell my policy, or should I
keep it? Using several sets of assumptions,
we give you (1) an estimate of the market
value of your policy; (2) an estimate
of the value of your policy to your beneficiaries
if you keep it until you die; and (3)
a comparison of the death benefit of
the policy with the projected value of
other investments.
Should I sell my policy now, or should
I wait? For one selected set of assumptions,
we give you an estimate of the future
market value and the rate of return for
waiting, and we explain the factors
that you should take into account in
deciding whether to sell now or wait.
If I decide to sell now, how can I obtain
a fair price? We explain how the pricing
process works. This puts you in a better
position to negotiate a fair price.
In a sense, selling a life insurance
policy is the opposite of buying a new
car. However, both transactions require
informed bargaining to get a good deal.
When you are buying a new car, you need
to understand how the price gets marked
up.
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Comments |
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Dealer's
cost |
What the dealer pays
the manufacturer for the car. |
|
plus: |
Dealer's
markup |
What
the dealer charges for expenses
and profit.
This is negotiable. |
equals: |
Purchase price |
What
you pay. Buyers with better information
can bargain for a lower price. |
|
|
|
When you are
selling a life insurance policy, you need
to understand how the price gets marked
down.
| |
|
Comments |
| |
Retention
value |
This is the value of the policy
to your beneficiaries if you keep
it until you die. It measures how
much they would have to invest
today in something else to match
the death benefit of the life insurance
policy, taking account of the probability
of death each year and the projected
return on other investments. |
|
minus: |
Income taxes |
A life settlement
is not tax-efficient. It destroys
value in two ways: (1) you pay
income tax on the excess of the
purchase price over the policy's
cost basis and (2) in most cases,
the buyer pays income tax on the
excess of the death benefit over
the purchase price. |
minus: |
Investor's profit |
The investor wants to obtain
a high return (often 10% to 14%)
to compensate for the risks of
buying the policy. Some investors
have lower targeted returns than
others. |
|
minus: |
Life settlement
provider's expenses and profit |
The life settlement
provider finds an investor to buy
the policy and administers the
policy after purchase. The provider
incurs expenses to appraise the
policy and manage an office. Some
providers seek lower profits than
others. |
minus: |
Broker's commission |
The broker finds
people who want to sell their
policies and gets purchase offers
from life settlement providers.
The broker's commission can be
up to 6% of the death benefit (and
therefore a much larger percentage
of the gross purchase price). This
is negotiable. |
|
equals: |
Purchase price |
What you receive.
Sellers with better information
can bargain for a higher price. |
How much does your
service cost?
A What's My Policy
Worth? report costs
$1,895. If you order another report for
the same policy within six months after
the first report, there is a discount
of $900. This gives you an opportunity
to use updated information about the
policy values or your health without
having to pay a second full fee.
What can I expect to receive?
Here's a sample
report, without
the appendices.
When we prepare a What's
My Policy Worth? report
for you, we do not just input data,
push a button and print. We have to
think about what we're doing. Inforce
illustrations, annual statements and
policy contracts do not have a standard
format, so we have to inspect each document
to find the information that we need.
We may have to use our own judgment if
some items of information are missing.
We also review our results to make sure
that they seem reasonable.
The report fee includes 30 minutes of
consulting time to answer your questions,
either by e-mail or by phone. You can
use that opportunity to tell us to make
changes in the assumptions that we have
made, and we will prepare a second report
for you without an additional charge.
We give you two chances to obtain a
report that will be useful to you. If
you are already familiar with our valuation
methodology, you can give us assumptions
to use in the first report. If you prefer
to let us choose the assumptions in the
first report, we give you a chance to
review the results and make modifications
for the second report.
How do you obtain a
life expectancy estimate?
If you are already
working with an agent or a life settlement
broker, you can ask for a copy of the
life expectancy evaluation reports that
have been obtained to get purchase offers.
These reports are prepared by a small
number of appraisal firms, including
AVS, Bragg Associates, EMSI, Fasano,
ISC Services, Midwest and 21st Services.
If you have not yet begun the process
of selling your policy, you will have
to obtain your own life expectancy estimate.
This requires getting an Attending Physician
Statement (APS) from each of your doctors
and submitting the package to one or
more of the appraisal firms.
Doctors typically charge from
$50 to $150 for an APS, but some doctors
charge much more. You can avoid excessive
charges by calling each doctor’s office and explaining that you — not an insurance company or a life settlement broker— are paying for the APS.
Life expectancy evaluation services typically charge from $250 to $550 for a report.
Some brokers are willing to obtain life expectancy estimates on a fee basis, and this can be a time-saving option to consider.
How likely is it that
I will benefit from your service?
Most
life settlement transactions involve
a lot of money, and the other participants
have a financial interest in convincing
you to do the deal. They won't make money
unless you sell your policy. The information
that we provide will help you make informed
decisions that are in your best interest.
The life settlement market is inefficient,
and better information can easily pay
for itself. Suppose you have a policy
that has an $800,000 death benefit. A
typical gross purchase price might be
15% to 30% of the death benefit ($120,000
to $240,000). A typical broker’s
commission would be up to 6% of the death
benefit ($48,000), shared with a referring
agent. This leaves a lot of opportunity
to recover our $1,895 fee by obtaining
a higher gross purchase offer or a lower
broker’s commission.
It can also make sense to pay for underwriting
costs yourself, instead of letting a
life settlement broker do it “for free.” Unless
brokers and providers are inept businesspeople,
they are taking account of their expenses
when they make a purchase offer. Some
brokers and providers have not-taken
rates of over 50%; that is, they incur
underwriting costs without completing
a transaction in more than half of their
cases. Suppose a typical underwriting
cost is $1,500. That means that each
successful transaction has to bear a
cost of more than $3,000 — and
that shows up in lower purchase offers.
Unfortunately, some brokers and providers
have fostered a something-for-nothing
atmosphere in the life settlement market
by using “free appraisals” as
a sales pitch to entice policyowners. They
are damaging the marketplace by driving
up transaction costs.
This may provide an opportunity for
well-informed policyowners to obtain
higher purchase offers. The combination
of a fee-based life expectancy appraisal
service and our What's
My Policy Worth? report lets you
deal with the life settlement market
on your terms. You don’t
have to contact a broker or provider
until you already have a good understanding
of how the life settlement process works
and what your negotiating position will
be.
You probably will not be able to sell your policy in the life settlement market if your life expectancy exceeds 20 years, or if your policy is less than two years old, or if the death benefit is less than $100,000 (although a few providers may buy smaller policies).
If I get multiple bids for my policy, that will tell me the market value. Why do I need your service?
The life settlement market lacks efficiency and disclosure. Our independent appraisal will help you decide if the bidding process really has worked to produce a fair value for your policy. Recent lawsuits in several states against life settlement providers and brokers raise serious questions about the fairness of life settlement offers. Many buyers also ignore potentially valuable features, such return-of-premium riders and secondary guarantees.
And there are additional benefits to having more information in your hands:
Brokers claim that they can coax higher purchase offers from providers. Who is in a better negotiating position with brokers and providers: someone who is well informed, or someone who is just relying on a textbook idea of market efficiency?
Getting a fair purchase offer is just one step. Negotiating a reasonable broker's commission is also important. Our report lets you be more creative in crafting a compensation agreement. For example, you can specify a minimum acceptable bid and an incentive fee for higher offers. Again, who is in a better bargaining position: someone who is well informed, or someone who is not?
A bidding process cannot tell you what your policy might be worth to your family if you keep it instead of selling it.
A bidding process cannot tell you if it might make sense to wait to sell your policy.
Where can I get
more information about life settlements?
Here are some websites that present different
perspectives on life settlements:
Financial Industry Regulatory Authority (FINRA)
www.finra.org
Institutional Life Markets Association
www.lifemarketsassociation.org
Life Insurance Consumers Alliance
www.lifeinsuranceconsumers.org
Life Insurance Settlement Association
www.lisassociation.org
Life Settlements
Education
www.lifesettlementseducation.com (currently not available)
National Association of Insurance Commissioners
www.naic.org/state_web_map.htm (links to state insurance departments)
The Insurance Forum
www.theinsuranceforum.com (in particular, see the January 2008 issue)
What's the next step?
Go to our How to order page to begin
the ordering process or to set up an
appointment to obtain more information.
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