Be Confident in Your Decisions

Mark, age 75, and Debbie, 76 have been happily married for 50 years. Since they never had children, they were very charitable, focusing their time and money on their local church, hospital and community. This philanthropic lifestyle was fulfilling for the both of them.

During 2001, Debbie’s close friend lost her husband to cancer. Both devastated and concerned for their friend, who seemed lost emotionally and financially without her husband, Mark and Debbie decided to purchase a Second to Die Universal Life Insurance Policy with a death benefit of $11,500,000, from their local insurance representative. This policy provided them with the confidence that if either one of them should pass away, the living spouse would be financially secured or upon the second spouse’s death, their legacy of philanthropy and charitable giving would continue.

Five years later, as Mark was reviewing their current policy statement, he realized that although at the time the policy seemed like a good idea, the premiums that were paid into the policy cumulatively added up to approximately $611,000. To Mark, this started to seem like a lot of money that could have been spent enjoying their retirement, but more importantly utilized towards their healthcare, since now both of their health had started to diminish. Mark started to wonder if he and Debbie should consider surrendering this policy. In addition, since Mark was the trustee of the Irrevocable Life Insurance Trust, which owned the policy, as part of his fiduciary obligations, he started to wonder if there was a better use for the cash that was currently in the policy and for the funds that were being applied towards the future premiums needed to properly fund the policy.

Upon discussing this with his wife Debbie, they decided to speak with their Financial Professional, Katie, to see what options were available. Katie listened to their concerns and reasoning, and informed them that Oppenheimer had an alliance with Melville Capital Group, which specializes in Life Settlements. She went on to explain that a life settlement is a strategy that depending on the client’s situation, may allow them to sell their policy as oppose to surrendering it. This will enable them to receive more than the current surrender value of the policy. Debbie and Mark seemed interested so Katie arranged for a meeting with Doug from Melville Capital to evaluate secondary market options.

During that meeting, Doug, like Katie, explained to them that this is not an everyday strategy and the criteria for selling a policy would have to be reviewed and that it would take some time. Doug looked into the case with his team, and since both insureds were alive, but with diminishing health, and the policy with its large death benefit was considered a “jumbo” policy, they thought there would be a ‘market’ for it. Doug and his team began the process of compiling a full set of medical records and policy specific information, to run a comprehensive auction in the market to see if there was any interest from an investor to purchase this size policy.

Two months later, the policy was sold, with their ILIT netting $2,550,000 vs the Cash Surrender Value (CSV) of $578,000, with no longer a need to pay $244,000 per year in ongoing illustrated premiums.

The clients were extremely pleased with the outcome as it dramatically helped their cash flow, allowed them to further diversify their portfolio and most importantly, gave them the ability to continue making gifts and distributions during their lifetime. They also now had the financial security to cover health care costs.

Katie was also grateful that her firm has a resourceful Wealth Management Platform, as it provides her the ability to satisfy any of her client’s lifetime and legacy planning needs.