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Case Examples

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 owes its success
to one simple idea: choice.

Life insurance has long been a valuable estate planning tool. However, the cost of maintaining insurance for older, affluent individuals presents significant challenges. Underperforming policies, due to low interest rates, combined with longer life expectancies, often put the annual premium outlay beyond what a policyowner chooses to maintain.

Still, the need for adequate coverage remains. Prior to the secondary market for life insurance, few options existed for consumers seeking to retain life insurance while eliminating premium payments. Nonforfeiture laws provide for surrender of the policy back to the life insurer for cash or exchange for a reduced paid-up benefit. Because both options are based on a value determined by the issuing life insurer, the policyowner's asset is frequently undervalued. The introduction of the secondary market enables policyowners to benefit from the market value of the policy, providing more value than a traditional exchange based on the cash surrender value.

In each of the following transactions, SWAPP makes it possible to eliminate premium payments while retaining a portion of the death benefit with no future premiums. Here are some examples of how SWAPP can be tailored to the policyowner's individual situation.

  • The policyowner may receive a cash settlement in addition to retaining a portion of the death benefit.
  • If a policyowner's need for insurance decreases over time, SWAPP can be designed to provide a decreasing death benefit.

The result is a revolutionary shift in how life insurance assets are managed. Instead of accepting the life insurers' nonforfeiture options, advisors can now have a client's policy appraised to determine the market value. The information provided by these appraisals helps policyowners use their capital more efficiently.