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A 72 year-old male held a $1.8 million universal life policy in a trust. The policy had been taken out in 1992 by the insured’s family trust for estate planning purposes, to benefit his children. Due to the low interest rate environment of the last several years, the $13,600 annual premium was no longer keeping the policy in good standing and the cash value was eroding very quickly. Over the years they had contributed a total of $245,000 in premiums, so the family was shocked to see the last annual statement reflect a cash value of only $23,600. Realizing they would need to substantially increase annual contributions, they decided to consult their advisor. He suggested a policy valuation. The family wanted to keep some coverage but was not in a position to gift additional money to the trust. They were very pleased that SWAPP enabled them to retain $300,000 of coverage with no future premium payments.
In 2008, the insured’s daughter purchased two identical $1.5 million universal life policies in preparation for her mother’s estate tax liability. After several years, her 81 year-old mother’s projected estate liability changed. The daughter contacted her advisor and voiced concern over the premium payments and her need for a reduced amount of insurance coverage. Her advisor had one of the policies, which had a cash value of $116,400 appraised for a cash settlement and received an offer of $250,000. The daughter declined the offer and elected to keep both policies. Subsequently, the advisor contacted Coventry and expressed the daughter’s desire to lower the cost of premium payments and address the reduced need in coverage for her mother’s estate. Coventry suggested SWAPP as an alternative. SWAPP made it possible for the daughter to retain $500,000 in death benefit with no future premium obligations for one of her policies. Combined with the other policy, this gave her a total of $2 million in coverage while reducing the overall premium outlay.
In 1997, the insured, a businessman and father, purchased three $1 million term policies through a trust to help transfer ownership of the family business to his children. After several years, he asked his financial advisor about the possibility of a life settlement but decided to continue funding the policies, as he had experienced a change in health. As the conversion deadline for the policies approached, he contacted his financial advisor again. His advisor understood the policyowners’ discomfort with the increasing premiums, but thought they should maintain some coverage. A policy valuation yielded a cash offer of $200,000 per policy. They considered selling one or two of the policies to help fund any remaining premium. Then, Coventry suggested the advisor look at SWAPP, which provided a much more attractive option and allowed them to maximize the death benefit without future premium obligations. Based on the 73 year-old insured’s health and the need for the insurance, his advisor recommended SWAPP with a decreasing benefit. The policyowners retained coverage without premium obligations beginning at $2.1 million for the first 5 years, $1.3 million for the following 5 years and continuing at $1 million thereafter.
SWAPP Transaction Process.
SWAPP begins with Coventry First's sophisticated valuation system which determines if an offer can be made. Here is how the process works:
- Coventry First reviews the policy to determine whether an offer can be made.
- If the policy qualifies, Coventry First relays the offer to the advisor.
- Once an offer is accepted, Coventry First issues closing documents.
- The policyowner designates an irrevocable beneficiary for the agreed upon amount of the death benefit.
- After receiving the executed closing documents, the change of ownership and beneficiary forms are sent to the life insurance company.
- Upon confirmation that the change forms have been processed by the carrier, any additional settlement funds are released.