Policy Buy Back- Life Settlement

Speaker 1 (00:07):

Hello, it’s Bill Borsema from OC Consulting Group, and today we have a short one for you. There are policy owners with some insurance companies that are getting offers from the carrier to buy the life insurance policy back. The offers are for more than the cash value, and they are to only a small subset of policies. But the question is, why would they do this? These are typically guaranteed universal life policies that have a guaranteed premium and a guaranteed death benefit, and often have little, if any, cash value, especially relative to more traditional policies. The bottom line is that it’s a matter of economics and what would be in the best interest of the financial situation of the insurance company. Some of the policies they issued in past years turned out to be too good of a deal economically. It’s simply better for the insurance company to try to get that liability off the books, so they offer an incentive. 

Speaker 1 (01:10):

When evaluating the offer. The policy owner should be reconsidering the original purchase of the policy. Do they still need it? Is the reason the originally secured life insurance still valid or if things have changed, is there an alternate current need? If they do decide they want to take advantage of the offer, it’s also important for them to understand the potential tax consequences. A great offer might result in gain. The first thing I advise a client who gets an offer and is seriously considering it is if the insurance company wants it because it’s a better deal to them to buy out the death benefit today. Maybe somebody else would be interested as well. I’ve done this a few times. It turned out the life settlement market ended up thinking the policy was attractive too. In fact, they felt it was more attractive than the insurance company did and ended up making a higher offer. In the end, the policy owner ended up with more. A third party obtained the deal they wanted, and the insurance carrier ended up with the policy staying on the books, ultimately review the situation, analyze the numbers, and make the decision that’s best for you. Remember, objective information, drives informed decisions. Enjoy your day.

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