Providing New Funds for Long-Term Care
by Jack V. Sinclair/The Heritage Group
and James Duncan/dba Long Term Care Partners

Rarely does the long-term care agent or consumer find a new source of financing for long-term care or long-term care insurance.  However, a LIFE SETTLEMENT, is just that. Individuals contemplating the cost and planning of future care face many dilemmas: long-term care insurance premiums may be too costly, yet the cost of paying for care could wipe out a person’s finances - their only source of income.  Sound familiar?

Now, there is a new financial tool available to seniors - a Life Settlement. A Life Settlement can provide funds for long-term care insurance or the actual cost of long-term care. Most consumers and even professional financial advisors are not aware of this option, let alone have a thorough understanding of the Life Settlement transaction. 

Read on to learn more about the power and value of a Life Settlement.

WHAT IS A LIFE SETTLEMENT?

A Life Settlement is the sale of an existing life insurance policy for a percentage of the face amount, providing an immediate source of cash.

The purchaser of the policy becomes the owner and beneficiary of the policy and assumes all future premium payments.

See “Case Studies” below for examples.

WHEN SHOULD A CLIENT SELL A POLICY?

• When there is a financial need

• When the policy is . . .

• no longer needed

• no longer wanted

• no longer affordable

BENEFITS OF A LIFE SETTLEMENT

• New source of cash

• Eliminate premium payments

• Provide funds for . . .

• long-term care insurance premiums

• long-term care expenses

• investments - annuities, mutual funds

• retirement

• Reduce existing debt

• Receive more than the cash surrender value of the policy

WHO MIGHT QUALIFY?

Individuals over the age of 70, especially those with significant health concerns.

POLICIES CONSIDERED

• Minimum face amount: $100,000

• No longer contestable  (24 months from issue date)

• Type of policy:

• Term Life

• Whole Life

• Universal Life

• Survivorship Life

• Variable Life

• Group Life

PERSONAL & ESTATE PLANNING APPLICATIONS

• A reduction in estate size means less insurance is required for tax liability.

• A change in financial condition makes premiums too costly.

• Client outlives beneficiaries.

• Remove Policy from trust or estate.

• Bankruptcy / Divorce (market value vs.cash value)

Note:  With the possible repeal of the estate tax, agents should be prepared to address the issues of their clients excess life insurance coverage.

BUSINESS APPLICATIONS

• Key-man policy is no longer needed due to retirement or change in business ownership, i.e. merger or acquisition.

• Buy / Sell funding is no longer necessary.

• Corporate Owned Life Insurance is no longer needed or wanted.

• Bankruptcy

Þ The sale of a corporate owned policy may be useful for satisfying the claims of creditors¹.
Þ A lender who received a policy as collateral may want to sell the policy to get more money after a default².

WHAT DETERMINES SETTLEMENT AMOUNT?

Primary Factors:

• Age of the insured

• Health of the insured

• Amount of premiums required to maintain the policy

• Cash value in the policy

• Type of policy

• Rating of the insurance carrier

THE PROCESS

1. Complete Application

Þ completed application and signed releases
Þ medical records
Þ policy information and illustration

2. Submit application and information to broker / providers

3. Presentation of offers

4. Client accepts offer

5. Closing paperwork completed by applicant

6. Ownership and beneficiary changes are completed by insurance company

7. Funds transferred to policy owner

* No cost
* Completely confidential
* No obligation to accept any offer
* No new medical exams are required.

CASE STUDIES

The following are examples which exemplify the power and value of using Life Settlement proceeds for long-term care.

Case 1 - An 80-year old gentleman with a $400,000 universal life insurance policy, which had very little cash value, had several financial concerns.  The premium payments were becoming a financial burden, and he was also concerned about long-term care for he and his wife.  With the assistance of The Heritage Group, the agent was able to present his client a check for $175,000. The sale of this policy not only relieved them of the monthly premium payments but the Life Settlement funds enabled the client to purchase a long-term care policy for his wife, and would provide funds for his long-term care needs.  Unfortunately, he did not qualify for LTCI because of his health.

Needless to say, this transaction was a winning strategy for them.

Case 2 - Shortly after his retirement, a physician with a $3,300,000 life insurance policy was lamenting the fact that he could no longer afford the premiums on his policy now that he was retired.  He contacted the insurance company only to discover that the policy had no cash value and that the premiums would be increasing. His accountant suggested that he consider selling the policy.  With the assistance of The Heritage Group, he sold the policy for $1,100,000, in just a matter of weeks.  As you can imagine, this gentleman was ecstatic, since he turned a policy that he was going to let lapse into over $1,000,000. The proceeds allowed him to gain piece of mind by using the funds as a reserve for long-term care and retirement.

Note:  If an individual does not qualify for long-term care insurance, he/she may still qualify for a Life Settlement.

A LIFE SETTLEMENT BROKER

A good Life Settlement Broker will provide the customer support and industry knowledge that will make the process flow smoothly.  A good Broker will also have contracts with Life Settlement Providers/Funders nationwide, enabling them to present you with the best offer for your policy. Experience and credibility are imperative when choosing a Life Settlement Broker to represent your best interests.

THE HERITAGE GROUP

The Heritage Group is an Oklahoma based, licensed broker that facilitates the purchase of life insurance policies. Our mission is to be the most proficient and productive marketer and field underwriter of Life Settlements, thus helping to improve the quality of life for our clients.  We have established relationships with the largest and most credible settlement providers, thus providing the insured with the best policy appraisals from the best companies.  With over thirty years of experience in the insurance industry, The Heritage Group believes that professionalism is the hallmark of our organization. Business is conducted with the highest integrity, ethics, morality and human respect.

MARKET POTENTIAL OF LIFE SETTLEMENT INDUSTRY

Conning and Company has calculated the Life Settlement market at $108 billion over the next decade. In their 1999 industry analysis, Conning & Company researched the market of individual life insurance policies owned by individuals over the age of 65. They determined that this group has over $492 billion of inforce life insurance, and represents the fastest growing and most affluent of the country’s population. With extended life expectancies, the group assures continued demand for financial services that provide flexibility during retirement.

SUMMARY

Life Settlements can be a significant solution to the long-term care financing crises of the future.  This new source of cash for end of life expenses will indeed assist the elderly in retaining their autonomy, dignity and financial independence at this very fragile time of life.

Always follow NAIC guidelines.

Professional Referral Fees Paid to Qualified Agents / Professional Advisors

For more information please contact:

Jack V. Sinclair
The Heritage Group
3240 W. Britton Road, Suite 105
Oklahoma City, OK 73120
405-753-9100 or 800-460-1991
Fax: 405-753-9100
email: thgai@aol.com

James Duncan
dba Long Term Care Partners
877-203-7410

¹Lawyers Weekly, USA, April 3, 2000
²Lawyers Weekly, USA, April 3, 2000