Yes, that is a problem that, without question, comes up in the day to day lives of even the crème de la crème life insurance agents during their career – How to keep that life insurance policy in-force? It’s a big policy, or on a significant client – you don’t want them to lose by having the policy lapse, it may not yet be a suitable Life Settlement, and you don’t want to lose either via persistency, renewals, etc. What do to?
Some may consider Non-Recourse Premium Financing to keep the policy in-force. However, that usually only applies for several short years until the lender captures the policy and takes over ownership and premium payments. The lender intends to take the policy as a life settlement.
Some may go to their bank to borrower money. However, banks are not too excited about lending money for this purpose, as their obvious questions are – how/when do we get repaid?
Life insurance companies are not too excited about premiums being financed – understatement. Even though there may not have been any intention to finance premiums at the time of application, circumstances may have changed, and life insurers have a long memory when it comes to how the application was completed, and rightfully so.
Solution: We are happy to offer, for appropriate cases, a Non-Recourse Benefit that is truly non-recourse, that is, no risk, no collateral, no repayment. It is a benefit, not a loan. Allow me to explain:
Example: 80 year old woman
Has been underfunding her $12M UL policy for too long
Now requires $1M per year to keep the policy in-force until LE
Life Expectancy is 9 years.
First, where we are not speaking of a life insurance premium financing loan, we don’t actually require LEs and in-force illustrations for our benefit of doing the transaction. Our Non-Recourse Benefit is not life insurance specific. We do, though, wish to know that the need is real and confirm the Use of Proceeds, so that we don’t unwittingly get caught up in someone else’s money laundering scheme. We believe that is fair.
In the example outlined above, we were able to put forth a solution as follows:
a) Life insured’s Trust put forth $350,000, enabling us to use our structure to put together the benefit (much smaller than the $1M premium requirement)
b) 60 days later, we put forth $1M to the Trust for the current premium requirement
c) We showed that the future premium allocation was in hand, that is, $1M for 8 years, or $8M, and simply being put to work by us. Even though the life insured was ahead of the game already, we wanted to emphasize that future distributions were assured.
Common Questions Come Up During the Process
- What about collateral?
Where this is a Non-Recourse Benefit transaction, and not a non-recourse loan, no loan and repayment apply, therefore no collateral, personal guarantees or other security is required.
- What about my group being repaid?
We will use our proprietary hedging method so as to grow our capital to cover, at least if not more, the outgoing commitment to your client each year, so we do not lose. We are not in business to “give money away”, so we manage our affairs to provide a win-win-win – your client, you, and us. We set up our affairs in such a way as to offset the $1M payment at day 60 (in this example) and offset the future commitment.
- Show us the details on how you hedge:
No. That is proprietary.
- This is not the way Non-Recourse Premium Financing is done:
Precisely. This is not a non-recourse premium financing transaction.
- How is the benefit treated, tax wise, by the Trust and/or Life Insured?
We do not give tax advice, regardless of the country in which the receiving party resides. Our Term Sheets will always advise the party(ies) to consult with their tax advisor for tax treatment. We simply suggest that when the tax ramifications (if any) are factored into the equation, we can adjust the size of the Non-Recourse Benefit to assure that the net amount does the proper job, as intended.
- How can we assure that future premiums will be paid – that the money is there?
See point C above.
- How does my group get make money?
My group and I (personally) do not get paid by doing these transactions. We make our money back within a year by way of our hedging method – we grow the assets to offset the distributions.
- Why don’t you put all of your assets into your hedging method?
That would be foolish, to put all of our eggs in one basket.
How Do We Start The Process?
Should you wish for us to review a live case and request a formal offer, please provide the following:
- In-force illustration to LE
- Trust particulars, so that I know where the money is going.
- Verbal (or text) LE estimate (I do not want to see LE reports) – this may be covered in the in-force ledger
- No Medical Info – I do not want to see any sensitive information related to medical history or current condition.
For a basic estimate, I don’t need to see the Trust document, and names on the in-force ledger may be redacted.
In closing, for policies that aren’t quite ready to be life settled (for whatever reason) or policies where the premium has become a real problem on an ongoing basis, let’s see if we can provide a solution.