Coventry: Ideal Candidates for A Life Settlement


Life Settlement
Policy	Term
Insured	Male, age 75
Face Amount	$11,000,000
Cash Value	$0
Coventry First purchased the policy for $2,750,000.
Click for More Case Details As part of his retirement package, a retiring CEO received an $11 million term policy. Since he had no desire to maintain the ongoing premiums, his advisor suggested having the policy valued by Coventry First to determine its market value. The client opted for a Coventry First life settlement which enabled him to reach his goal of establishing a $2,750,000 million trust for his grandchildren.


Life Settlement
Policy	Universal Life
Insured	Female, age 87
Face Amount	$6,500,000
Cash Value	$705,000
Coventry First purchased the policy for $2,500,000.
Click for More Case Details The client was still paying premiums in the tenth year of her seven-year vanishing premium policy. She was unhappy with the policy’s performance, but needed life insurance for estate planning purposes. Her attorney recommended having the policy appraised by Coventry First to determine its market value. The client chose a Coventry First life settlement which yielded more than three times the cash value of the policy. She used the proceeds to obtain more efficient coverage and meet her estate planning goals.


Life Settlement
Policy	Multiple Whole Life & Universal Life
Insured	Female, age 83
Face Amount	$12,000,000
Cash Value	$2,400,000
Coventry First purchased the policy for $4,300,000.
Click for More Case Details The client’s current policies were underperforming. Her advisor, understanding her need for insurance for estate purposes, suggested a Coventry First life settlement. The market value of her policies provided her with $1.9 million more than the cash value in her old policies. Using the proceeds from the life settlement, she was able to obtain a new $15 million guaranteed death benefit policy. Although the cost per thousand for the new insurance was higher, the premium outlay was 30% less after the income from the life settlement.


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Ideal candidates for life settlements are high net worth clients age 60 and over with:

A life insurance policy with a face amount of at least $250,000
A change in insurability since the policy was issued
Life expectancy of 20 years or less

A study published by Conning and Company, an insurance investment and research firm, found that more than 20% of the policies on insureds age 65 and over have a fair market value in excess of their cash surrender value.

A life settlement can be a good option for a variety of reasons which include:

Client may have outlived the risk insured against
Spouse has passed away
Business partnership has dissolved
Key employee has retired after a long career

In other cases, investment projections may have proven unduly optimistic in the current low-interest environment. So-called “vanishing” premiums have not vanished, and the financial plan built around the policy is not being met. In any such case, the owner may want out of his policy, either to move the value into another asset or to buy a more efficient insurance policy.

Tax Implications
The sale of a life insurance policy may be a taxable event. Tax experts disagree on the details of taxation, but there is a general consensus that if the cash surrender value of the policy exceeds the premiums paid on it, the life settlement proceeds will be taxed as follows:

The portion up to the policyowner’s investment in the contract will be received tax free.
The portion exceeding the investment in the contract, but not exceeding the cash surrender value, will be taxed as ordinary income.
The portion exceeding the cash surrender value will be a gain, which in some circumstances may be a capital gain.

Where the cash surrender value of the policy is less than the investment in the contract, the IRS may take the position that only the cash surrender value represents a tax-free return of basis — and everything else is gain on the sale of the asset. This stance is not universally accepted, and Coventry First does not give tax advice, so professional advice on any particular fact situation is in order.

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