Chapter 3

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="122285a1erlcgo.gif"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>Lifetime Settlements</B></FONT><B>     |     </B><A HREF="index.htm" TARGET="_top" TITLE="Lifetime Settlements"><U><B>home</B></U></A><B>            </B><A HREF="id15.htm" TARGET="_top" TITLE="TABLE OF CONTENTS"><U>TABLE OF CONTENTS</U></A>   |   <A HREF="id54.htm" TARGET="_top" TITLE="GLOSSARY"><U>GLOSSARY</U></A>   |   <A HREF="id76.htm" TARGET="_top" TITLE="Review"><U>Review</U></A>   |   <A HREF="id55.htm" TARGET="_top" TITLE="FINAL EXAMINATION"><U>FINAL EXAMINATION</U></A></div> <div> <A HREF="id59.htm" TARGET="_top" TITLE="Introduction"><U>Introduction</U></A>   |   <A HREF="id60.htm" TARGET="_top" TITLE="Chapter 2"><U>Chapter 2</U></A>   |   <B>Chapter 3</B>   |   <A HREF="id62.htm" TARGET="_top" TITLE="Chapter 4"><U>Chapter 4</U></A>   |   <A HREF="id63.htm" TARGET="_top" TITLE="Chapter 5"><U>Chapter 5</U></A>   |   <A HREF="id64.htm" TARGET="_top" TITLE="Chapter 6"><U>Chapter 6</U></A></div> <div> </div> </td> </tr><tr> <td valign="top" width=210 BGCOLOR="#FFCC66" TEXT="#080000" background="121d2c00dkelyh.gif"> <div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U><IMG SRC="12caf630.gif" border=0 width="175" height="99" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></U></A></div> <div> <I><B> <TABLE BORDER="2" CELLPADDING="2" CELLSPACING="1" WIDTH="158" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 16 ><NOBR><div> <A HREF="mailto:instructor@wallstreetinstructors.com" TARGET="_top" TITLE="mailto:instructor@wallstreetinstructors."><U>e-mail an instructor</U></A></div> </NOBR></tD> </tR> </TABLE></B></I></div> <bR> <div> Copyright ©2004 Wall Street Instructors, Inc. All rights reserved. No portion of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without prior written permission of Wall Street Instructors, Inc.</div> <bR> </td> <td valign="top" height=390 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <B>Chapter 3</B></div> <div> <B>Prospects for Lifetime Settlements</B></div> <bR> <bR> <div> The important points addressed in this lesson are:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Differences between viatical settlements and senior settlements</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Motivating factors for policyholders contemplating the sale of their policies</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Types of policies acceptable for viatical and senior settlements</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">NAIC's Model Act requirements on minimum pricing of viatical settlements</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Factors affecting the pricing of senior settlements</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Individual uses of senior settlements</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Business uses of senior settlements</div> <bR> <bR> <div> For years insurance companies and their agents have presented myriad reasons for purchasing life insurance -- to protect heirs, pay estate taxes, as a tax-advantaged investment vehicle, to indemnify businesses for the loss of key employees, fund a business succession plan, etc.  But with the emergence of a secondary market for life policies, “insurance planning” is no longer a simple euphemism for “insurance purchase”.  Now those engaged in financial planning must consider the possibility of selling existing policies as well.  As we’ve seen from recent events on Wall Street -- analysts are being held financially liable for making blanket recommendations “to buy “ or “hold” stocks in their clients‘ portfolios, while ignoring the need to “sell” underperforming issues.  It is in an insurance agent’s best interest -- as well as policyholders’ -- to consider the possibility of selling insurance policies that no longer meet the client’s needs.</div> <bR> <div> Viatical Settlements vs. Senior Settlements</div> <bR> <div> Before continuing, it’s important to understand the growing dichotomy in the market for lifetime settlements:  the difference between “viatical settlements” and “senior settlements”.  While similar in many respects, there are important distinctions:  </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">One obvious difference is the viator’s motivation to sell his or her policy.  In a senior settlement, the viator may be looking to redeploy assets -- reinvestment of the proceeds may be a driving force.  In viaticals, the viator is more likely to use proceeds to meet current expenses.   </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">From the investors’ perspective, viatical settlements, accompanied by medical statements attesting to terminal illness, allow for more accurate projections of possible returns.  “Senior settlements” dealing with medically "impaired" insureds have more fuzzy projections of life expectancy.    </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">As we’ll discuss in detail later in the program, another difference between “viatical” and “senior” settlements is in the tax treatment of the settlement proceeds.    </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Government regulation usually develops in response to changing conditions -- that is to say, regulators are typically reactive, not proactive.  State regulations, such as the NAIC’s Viatical Settlements Model Act, in some respects, regulate the market as it once existed, not necessarily how the market behaves today.  And as the name implies, the Model Law focuses on “viatical” settlements, which as we’ve seen are becoming a smaller part of the overall secondary market in life policies.  </div> <bR> <div> With those distinctions in mind, let’s explore the prospects for viatical and senior settlements.    </div> <bR> <bR> <div> There are many reasons why a policyowner would sell an in-force policy in a viatical or senior settlement. </div> <bR> <div> Viatical settlements have often been used to:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">obtain needed medical care; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">pay bills; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">maintain independence by providing for living expenses; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">spend quality time with loved ones in the final days, such as taking a special vacation. </div> <bR> <div> Senior settlements are typically motivated by other reasons, including:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">to reinvest the settlement, because the original purpose for the life insurance no longer exists; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">to purchase more cost-effective or appropriate insurance products, such as long term care or survivorship policies; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">to update an estate plan;</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">to make intra-family gifts; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">to provide for favorite charities. </div> <bR> <div> In other cases, the life settlement funds may be used by businesses to:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">buy out the employer’s interest in another split-dollar life insurance policy; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">begin a new business or expand existing operations; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">repay debt; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">buy back a business interest from a partner or stock from a co-stockholder; or</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">facilitate the transfer of the business. </div> <bR> <div> Charitable organizations that own life insurance policies, usually as a result of a donation, may use a lifetime settlement to:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">raise funds to meet immediate needs for daily operations or capital budgets, or</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">eliminate cash outlays to pay the premiums.</div> <bR> <div> Viatical Settlement -- The Market</div> <bR> <div> Viatical settlements have often been used to provide needed medical treatment, to produce income, or to cover end-of-life expenses.</div> <bR> <div> When we examine the income taxation of viatical settlements, we will see that tax-free viatical settlements to terminally ill individuals are limited to those with a life expectancy of 24 months or less. Despite this limitation, viatical companies sometimes purchase life insurance policies insuring individuals considered terminally ill who have life expectancies of up to 60 months.</div> <bR> <div> The industry’s newness and lack of organization make it difficult to determine the size of the viatical market exactly. Nonetheless, a recent study has estimated that during the 1990s, $1 billion worth of life insurance policies were sold to viatical settlement companies, not including senior market settlements. That means that the current market for viatical settlements is at least $100 million annually, and probably much more than that. </div> <bR> <div> Although the early viatical settlement market included a large number of viators afflicted with AIDS, medical and pharmacological advances (including the introduction of protease inhibitors and so-called drug cocktails) have significantly lengthened the life expectancy of many AIDS sufferers. As a result of this longer life expectancy, people with AIDS no longer constitute the majority of individuals selling their life insurance policies to viatical settlement companies.</div> <bR> <div> We have seen that viatical settlement companies will purchase life insurance policies covering terminally ill insureds, but exactly what kind of life insurance policies will they buy? The answer is, at first, somewhat surprising: They will buy virtually any life insurance policy underwritten by a major life insurance company, including: </div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">whole life policies </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">universal life policies </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">convertible term life policies </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">group life certificates </div> <bR> <div> Despite this general openness, there are a number of guidelines and preferences that viatical settlement companies appear to have. In the case of term life insurance policies and group life insurance certificates, the viatical settlement companies want to be sure that the coverage will not expire prior to the insured’s death. That means, of course, that the viatical settlement company will normally convert the purchased term policy or group certificate to a permanent life insurance policy. Accordingly, term or group coverage must include a conversion feature. </div> <bR> <div> In addition, viatical settlement companies seem to prefer to purchase universal life insurance policies. Although there are few reasons given for this apparent preference, it is likely that the premium flexibility that is a hallmark of universal life insurance (and the additional flexibility this also gives the investor) is the cause for this preference.</div> <bR> <div> Reagrding ownership of the policy, viatical settlements most commonly are arranged if the insured is the also the policyholder, but this is not always the case.  The policy might be owned by a spouse or other family member -- or the policy might be held by a trust or another fiduciary.  The only requirement in a viatical settlement is that the insured is terminally ill and the policyholder is willing to sell the policy.  </div> <bR> <div> Viatical Settlements -- Prospects</div> <bR> <div> Now that we have looked at the viatical market overall, let’s look at the individuals who make up that market: the prospects.</div> <bR> <div> Who is a prospect for a viatical settlement? The first requirement is that he or she owns a policy under which a terminally ill individual is insured. In most cases, the terminally ill insured will also be the policyowner, although that is not always the case. Although some viatical companies will purchase a life insurance policy covering a terminally ill insured with a life expectancy of as long as 60 months, income tax free viatical settlements require that the insured have a life expectancy not exceeding 24 months.</div> <bR> <div> The primary motives for viatical settlements are:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">obtaining needed medical care; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">paying bills; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">maintaining independence by providing for living expenses; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">taking a special vacation with a loved one. </div> <bR> <div> Unlike the prospects for senior settlements, the viatical settlement prospect does not need to be an older individual. He or she may be quite young as, in fact, were many of the AIDS-afflicted viators.</div> <bR> <div> In general, the viator considers the current need for funds to outweigh the future needs of the policy beneficiary after the insured’s death. Once the life insurance policy has been viaticated, the death benefits become payable to the investor rather than the former policy beneficiary.</div> <bR> <div> Often the terminally ill individual will have mounting medical expenses and may have lost his or her source of income, so that the viatical settlement can become a lifeline at a period of great financial need.</div> <bR> <div> Other sources of funds (for example, accelerated death benefits paid by the life insurer) may be unavailable to the viatical settlement prospect. Even if accelerated death benefits are available under the life insurance policy, a combination of accelerated death benefits and viatication may produce the largest total settlement for the viator. </div> <bR> <div> Finally, although viatical settlement companies have purchased smaller life insurance policies, some companies insist that a life insurance policy exceed a certain minimum ($100,000, for example) before the company will consider purchasing it under a viatical settlement.</div> <bR> <div> Although viator and settlement company negotiate the terms of the settlement contract, the NAIC's Viatical Settlements Model Act provides standards for settlements in order to help ensure that viators receive a reasonable return for viaticating a life insurance policy. The rather simplistic standards listed in the Model Act were developed at a time when lifetime settlements were primarily “viatical settlements” -- the insured was diagnosed with a terminal medical condition.  These standards are less appropriate in the case of “senior settlements”, in which estimated life expectancies are much longer and less certain.  In the case of viatical settlements, the Model Act does allow payouts to be adjusted slightly downward for lower-rated life insurers:</div> <bR> <div>  </div> <div> <TABLE BORDER="2" CELLPADDING="2" CELLSPACING="1" WIDTH="611" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 ><NOBR><div> <I><B>Insured’s Life Expectancy</B></I></div> </NOBR></tD> <tD VALIGN=TOP><NOBR><div> <I><B>Minimum Percentage of Face Value* Paid to Viator</B></I></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="223"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="223" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="371"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="371" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 18 WIDTH="223"><div> <B>Less than 6 months</B></div> </tD> <tD VALIGN=TOP WIDTH="371"><div> <B>80%</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 18 ><NOBR><div> <B>At least 6 but less than 12 months</B></div> </NOBR></tD> <tD VALIGN=TOP WIDTH="371"><div> <B>70%</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 35 WIDTH="223"><div> <B>At least 12 but less than 18 months</B></div> </tD> <tD VALIGN=TOP WIDTH="371"><div> <B>65%</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 35 WIDTH="223"><div> <B>At least 18 but less than 24 months</B></div> </tD> <tD VALIGN=TOP WIDTH="371"><div> <B>60%</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 18 WIDTH="223"><div> <B>24 months or more</B></div> </tD> <tD VALIGN=TOP WIDTH="371"><div> <B>50%</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="223"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="223" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="371"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="371" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="223"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="223" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP><NOBR><div> <B>*  face value of policy less any loans or liens</B></div> </NOBR></tD> </tR> </TABLE></div> <bR> <bR> <div> Although there is considerable flexibility in negotiating viatical settlements, under the NAIC's Viatical Settlements Model Act a viator with a 6-month life expectancy and a $100,000 life insurance policy might look forward to a viatical settlement of at least $80,000. The Model Act states that the settlement percentage may be reduced by 5 percent for policies underwritten by life insurance companies rated lower than the four highest categories by A.M. Best or similarly rated by another rating agency. Based on that guideline, a life insurance policy of the same face amount issued by a C-rated life insurer might result in a settlement of $75,000 instead of $80,000. </div> <bR> <div> Similarly, a viator with a 30-month life expectancy and a $250,000 life insurance policy might expect a $125,000 viatical settlement for a high-quality policy (or $112,500 for a lower-rated insurer.)</div> <bR> <bR> <div> <I><B>EXAMPLES:</B></I></div> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 213 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="213" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Meeting Daily Needs</B></div> <bR> <div> From <I>Consumer Reports </I>® :<B> "</B>Arline Maisel, her three brothers, and two sisters despaired when they learned in mid-1997 that their dad, stricken with prostate cancer, had six months to live. With three children still at home to support, Hank Maisel, 61, was too ill to work, and a failed business deal had left him broke. "He was only a few payments away from losing the house," says Arline. By selling half of Hank's only asset, a $500,000 term-life insurance policy, however, the Maisels were able to raise enough after the viatical company pocketed its $59,000 share of the proceeds to meet medical expenses and clear up debts. Hank died in 1999, and, says Arline, "I am convinced he lived an extra year thanks to the money." "</div> <bR> <bR> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="213" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 283 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="283" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Using Viatical Settlements to pay for Long Term Care</B></div> <bR> <div> From a law firm specializing in estate planning and care of the elderly:  "We had a client's family approach us two years ago about their father. The father was in his mid-seventies. His funds were being rapidly depleted for long term care. Due to a stroke, the father had been residing in a long term care facility for the five preceding years. He owned a whole life insurance policy with a $750,000 death benefit, but he was still required to pay substantial premiums to keep the policy in force. His family was ready to let the policy lapse. There was no cash surrender value because dad had already taken out policy loans to the maximum extent.</div> <bR> <div> We advised the family that they might be able to "sell" the policy to a company that would pay cash for it. A viatical settlement was arranged and the client received a check for $170,000, and did not have to repay the policy loan. This was a windfall to the family because they thought they were going to surrender the policy. As it turned out, the client died about two years later."</div> <bR> <bR> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="283" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <div> Senior Settlements -- Market</div> <bR> <div> In the late 1990s, a new settlement service (similar, in some aspects, to viatical settlements) made an appearance. These new settlements, referred to as “senior settlements” or “high net worth transactions“, make life insurance policies more liquid by offering relatively healthy, older policyowners the opportunity to sell their policies during their lifetime for some amount less than the policy face amount but more—sometimes significantly more—than its cash value. </div> <bR> <div> Although these senior settlements are designed to appeal to relatively healthy policyowners, it is important that the term healthy, when used with senior settlements, be understood in its proper context. While viatical settlements are meant for insureds of any age with serious, life-threatening illnesses, senior settlements are designed for older insureds who may have chronic and sometimes serious illnesses that are not immediately life threatening. So, although we may consider the senior settlement market as one composed of healthy insureds, they are healthy only when compared with those insureds who make up the viatical settlements market.  </div> <bR> <div> According to a recent study, the “senior settlements” is the fastest-growing sector of the secondary market for life policies. This result is not surprising since Americans, age 65 and older, are the most affluent and fastest-growing segment of the population. Furthermore, policyowners in this demographic segment own life insurance amounting to approximately $500 billion—an enormous potential market.  These trends will only continue as the baby-boom generation ages.  The number of people 65 and older is expected to increase more than 20% from the years 2000 to 2010, according to the U.S. Census Bureau. Estimates are that there will be 70 million people 65 and over by 2030, representing about 20% of the U.S. population. Over the next 10 years, individuals reaching age 65 will bring with them a comparatively greater amount of life insurance coverage than the generation before them.  Industry experts estimate that life settlement sales could reach $20 billion to $50 billion per year within the next 10 years.  Proceeds from a life settlement can be used to reinvest in additional financial planning tools, such as long-term care insurance or annuities. The sale of more appropriate insurance products, made possible by the sale of a life insurance policy, will also enable insurance professionals to receive additional commissions, thus generating added revenue into the economy.</div> <bR> <div> The senior settlements market is made up of generally affluent individuals age 70 or older, whose original reasons for purchasing their insurance no longer apply. Often, the premiums paid for this now-unneeded coverage have become uneconomical. </div> <bR> <div> In general, senior settlements apply to policies of at least $250,000, held by insureds who have suffered some decline in health since the policy‘s issue, such as heart disease, adult-onset diabetes or high blood pressure. The condition need not be life threatening, but it is usually life shortening. In the termonology of the industry -- prospects for senior settlements have “impaired” health.</div> <bR> <div> In the not-too-distant past, the principal concern of many older individuals was not living long enough. With the life-extending but expensive drugs and technology now available, the principal concern today is outliving one’s financial means.  </div> <bR> <div> It is expected that baby boomers, long accustomed to high-income lifestyles, will rely on the new liquidity of their life insurance afforded by senior settlements to provide augmented flexibility in their retirement planning. For individuals in their 70s or 80s who are running low on cash, selling a life insurance policy may be the key to a few more years of high-quality living—not fundamentally unlike the promise of a reverse mortgage.</div> <bR> <div> It is not just individual policyowners who make up the market for senior settlements. A large segment of the market lies in business-related life insurance.</div> <bR> <div> A key person, heavily insured by his or her employer, may leave that employer to join a different company, possibly making the existing life insurance no longer necessary. Or, a large life insurance policy that was used to provide funds for a buy-sell agreement may no longer be needed when the individual’s business interest has been bought out by the other partners.</div> <bR> <div> Whether the policyowner seeking a senior settlement is an individual with grown children and a deceased spouse or a corporation with a no-longer-needed life insurance policy, the total market is large. It has been estimated that 20 to 25 percent of life insurance policies owned by these older, affluent policyowners are worth more—sometimes much more—than their cash value.</div> <bR> <div> If there is an obstacle in the development of the senior settlements market, it lies in the absence of a central referral source. Unlike the market for viatical settlements, which is served by a network of physicians and organizations, the newer market for senior settlements is fragmented and unorganized. As a result, the life settlements market is not nearly as easy to reach as the viatical market. </div> <bR> <div> Senior Settlements -- Pricing</div> <bR> <div> Although the life insurance policies involved in senior settlements are generally larger than those in viatical settlements (typical senior settlements involve policies with a face amount of $1 million or more, while the average viatical policy is about $100,000) the percentage of the policy’s face amount paid in senior settlements is considerably lower. The reason for this difference lies almost entirely in the disparity between the life expectancy of the insureds involved.</div> <bR> <div> While life expectancy is generally two years or less for viatical settlements, it is much longer for senior settlement—often as long as 13 or more years. And, from the buyers’ viewpoint, the insured’s longer life expectancy means that death benefits are likely to be far longer in coming, and buyers are more likely to insist on greater discounts from the policy face amount.  The simplistic standards set in the NAIC’s Model Law do not work well in situations with longer life expectancies.  Investors in senior settlements are more likely to rely on present value calculations for more realistic pricings.  </div> <bR> <div> The concept of  “present values” is based on that old adage: a bird in the hand is worth two in the bush.  A dollar in hand today is worth more than the possibility of a dollar received in the future.  How much more? That’s the investor’s rate of return -- and it depends on the amount of risk the investor feels he is taking by waiting for those future dollars. In valuing a lifetime settlement, the investor applies a rate of return to the expected life expectancy to obtain a “present value” of those future death benefits.  There is a “simple” mathematical formula to calculate a present value:</div> <bR> <bR> <div> <TABLE BORDER="0" CELLPADDING="2" CELLSPACING="1" WIDTH="565" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="142"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="20" ALIGN="bottom" WIDTH="142" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP COLSPAN=2 WIDTH="408"><div> <B>policy's face value</B></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 18 ><NOBR><div> <B>present value  =</B></div> </NOBR></tD> <tD VALIGN=TOP COLSPAN=2><NOBR><div> <B>______________________________________________</B></div> </NOBR></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 36 WIDTH="142"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="36" ALIGN="bottom" WIDTH="142" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="191"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="36" ALIGN="bottom" WIDTH="191" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="216"><bR> <div> <I><B>life expectancy in years</B></I></div> </tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 20 WIDTH="142"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="20" ALIGN="bottom" WIDTH="142" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP><NOBR><div> <B>(1 + annual rate of return) </B></div> </NOBR></tD> <tD VALIGN=TOP WIDTH="216"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="20" ALIGN="bottom" WIDTH="216" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <div> Luckily, there are tables of "present value intererst factors" to assist investors calculate the present value of a viaticated policy.  The twotables below list present values for annual rates of return at 16% and 20%.  By multiplying face value of the policy by the interest factor for the appropriate rate of return for the estimated life expectancy, the purchaser can determine the present value of the policy. </div> <DIV ALIGN="LEFT"></DIV> <div>    </div> <div> <TABLE BORDER="0" CELLPADDING="2" CELLSPACING="1" WIDTH="305" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="ALL" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" > <tR> <tD VALIGN=TOP BGCOLOR=#FFCC66 HEIGHT= 331 WIDTH="71"><div> <B>years</B></div> <bR> <div> 1</div> <div> 2</div> <div> 3</div> <div> 4</div> <div> 5</div> <bR> <div> 6</div> <div> 7</div> <div> 8</div> <div> 9</div> <div> 10</div> <bR> <div> 11</div> <div> 12</div> <div> 13</div> <div> 14</div> <div> 15</div> </tD> <tD VALIGN=TOP WIDTH="21"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="331" ALIGN="bottom" WIDTH="21" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFCC66 WIDTH="90"><div> <B>@16%</B></div> <bR> <div> 0.8621</div> <div> 0.7432</div> <div> 0.6407</div> <div> 0.5523</div> <div> 0.4761</div> <bR> <div> 0.4104</div> <div> 0.3538</div> <div> 0.3050</div> <div> 0.2630</div> <div> 0.2267</div> <bR> <div> 0.1954</div> <div> 0.1685</div> <div> 0.1452</div> <div> 0.1252</div> <div> 0.1079</div> </tD> <tD VALIGN=TOP WIDTH="26"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="331" ALIGN="bottom" WIDTH="26" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFCC66 WIDTH="71"><div> <B>@ 20%</B></div> <bR> <div> 0.8333</div> <div> 0.6944</div> <div> 0.5787</div> <div> 0.4823</div> <div> 0.4019</div> <bR> <div> 0.3349</div> <div> 0.2791</div> <div> 0.2326</div> <div> 0.1938</div> <div> 0.1615</div> <bR> <div> 0.1346</div> <div> 0.1122</div> <div> 0.0935</div> <div> 0.0779</div> <div> 0.0649</div> </tD> </tR> </TABLE></div> <bR> <bR> <div> Assume a $1 million dollar policy is offered for sale and the insured has a life expectancy of 2 years.  Also assume an  investor is looking for a 20% pretax rate of return, based on the risk she perceives she is taking.  The present value factor from the 20% table for 2 years is 0.6944.  In other words, she should be willing to pay 69.44% (0.6944) of the policy‘s face value or $694,400($1,000,000 x 0.6944).  If the insured’s life expectancy is 10 years, the same investor would be willing to pay only 16.15% (0.1615) of the face value, or $161,500 ($1,000,000 × 0.1615 = $161,500).  The present value tables illustrate a common sense concept -- investors are willing to pay more for situation with faster payoffs, and will apply deeper discounts for longer waits. </div> <bR> <div> As we can see, the effect of a longer life expectancy on the amount of a settlement is enormous. In this case, the viator with a two-year life expectancy might receive almost four times the settlement than the insured with a ten-year life expectancy.</div> <div> .   </div> <div> Generally speaking, the life expectancy of the insured is the primary factor in setting the value of a lifetime settlement.  Keep in mind, a projected  life expectancy is an “educated best guess” -- there are no guarantees.  The insured could die tomorrow or far outlive the projected life expectancy.  This is a risk the investor takes -- and the rates of return sought by the investor reflect that uncertainty.  One last point about anticipated rates of return:  if the insured's life ends exactly at the projected life expectancy, the investor will actually earn the rate of return he or she sought.  If the insured dies earlier, the investor's actual return on the investment will exceed the rate stated he or she anticipated; if the insured outlives the projected life expectancy, the investors actual rate of return will be less.   This uncertainty has led to accusations of misrepresentations when terms such as "guaranteed" are used advertisements aimed at potential investors -- these misrepresentations and other ethical abuses are discussed later in the program.</div> <bR> <bR> <div> While life expectancies are the primary determinant of settlement proceeds, there are other factors that affect the amount a policyowner might receive. These include:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">size of policy and accumulated cash value; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">premium payments needed to sustain coverage; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">additional policy features that could affect death benefits;</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">the rating of the life insurance company that underwrites the coverage; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">the prevailing discount rates in the viatical settlement market. </div> <bR> <div> As mentioned earlier, senior settlements are sometimes called “high net worth” transactions because the market is geared to the purchase of  larger policies.  The industry-wide minimum is $250,000, and sale of multi-million dollar policies is common.  Larger policies are more marketable; smaller policies sell at a deeper discount.  Sellers of policies with substantial cash values will command higher prices that those with little or no accumulated cash values -- and those higher prices make policies with large cash values less desirable to purchasers.  Purchasers, in effect, are looking to buy the "pure insurance coverage", not the cash value.</div> <bR> <div> The purchaser of a viaticated policy must pay all future required premiums to keep the policy in force.  Traditional whole life policies require an annual premium payment as long as the insured is alive.  Limited pay policies have a shorter premium payment periods, e.g. “20-year limited pay“, “paid up at age 75“, etc.  In limited pay policies, the purchaser will face fewer possible premium payments and can therefore be more generous in the amount he is willing to pay for the policy when negotiating a purchase price.  Likewise, if the policy has a waiver of premium rider and the insured is disabled, future premium payments are eliminated (for the duration of the disability). This, too, is advantageous to the purchaser -- and will result in a higher purchase price.  Universal life policies allow for more flexible premium payments -- and purchasers of viaticated policies prefer universal policies for that fact.   </div> <bR> <div> Policies with "extra" possible death benefits are worth more to purchasers of viaticated policies.  Accidental death riders, commonly referred to as “double indemnity“ plans, will double the death benefits paid in the event the insured dies of accidental causes.   While accidental deaths are a statistically rare, the possibility of greater death benefits will appeal to investors -- and consequently result in slightly higher prices.  A policy with a cost of living adjustment (COLA) rider will adjust death benefits upwards for inflation.  These types of riders are more valuable to an investor than policies without such provisions.  </div> <bR> <div> Two other policy provisions that affect the marketability of the policy are the contestability and suicide clauses.  The former allows insurers to contest possible claims in the early years of the coverage -- typically the first two years.  Thereafter, the insurer will find it difficult to deny payment of the death claims (except in rare cases such as impersonation or when the beneficiary intentionally murders the insured).    Similarly, life policies will allow insurers to deny claims for death by suicide in the early years of the policy.  Most insurers impose a one- or two-year suicide clause in their policies.  Generally speaking, most purchasers will only buy “aged” policies, those in which these limiting clauses have elapsed.  Although, under the right circumstances, some investors may be willing to assume the greater risk that “younger” policies pose, if the potential returns are sufficient.  </div> <bR> <div> As with viatical settlements, investors will discount the value of the policy based on the quality of the insurer.   Sellers of lower-rated policies will receive less than those offering higher-rated policies.   Or put another way, investors will require a higher rate of return -- that is, apply a deeper discount -- on riskier policies.  </div> <bR> <div> As with any free market, rates of return will vary based on changing economic times.  The rate of return investors expect from an investment in viatical policies depends, in part, on what types of return are available on alternative investments -- which, in turn, are dependent on general economic conditions.  Referring back to the present value tables, if the investor’s expected rate of return were to drop from 20% to 16%, the value of viaticated policies will rise significantly.  Using the previous example, a viator with a two-year life expectancy would receive $743,200 instead of $694,400, and the policy with a ten-year life expectancy would receive $226,700  instead of $161,500.     </div> <bR> <bR> <div> As you can see, a number of factors influence the “settlement value” of a life insurance policy.  Different investors will attach varying degrees of significance to these factors.  A rate of return that one investor is willing to accept, will be insufficient for another.  One investor may rely on very conservative estimates of the insured's life expectancy, another will be more liberal.   Determining a “value” for an existing policy is more of an art, than a science.  For that reason, viators looking to sell their policies should “shop around” to find the best deal.  </div> <bR> <div> Senior Settlements -- Prospects</div> <bR> <div> Inevitably, in a discussion of markets, we need to begin identifying prospects. Let’s look more closely at just who is a prospect for a senior settlement.  The senior settlement prospect has four important characteristics: age, life insurance need, health status and policy size. </div> <bR> <bR> <div> <I><B>Age</B></I></div> <bR> <div> As the name implies, senior settlements are designed for senior citizens.  The ideal senior settlement prospect owns a life insurance policy on which the insured is at least age 65; by age 70, the insured is an even better prospect.</div> <bR> <bR> <div> <I><B>Need for insurance</B></I></div> <bR> <div> The ideal prospect’s life insurance need has evaporated or changed.  Insurance purchased to provide for a young family’s needs -- such as a college education -- may no longer seem so important when the children are grown. Perhaps a spouse has died or there has been a divorce.  Changes in the tax code may eliminate the need for coverage to pay for estate taxes.  If an individual, business owner, partner or trustee, he or she has considered lapsing the policy because estate or business needs have changed, or premiums have escalated (or both), he or she is a propect.  A potential seller of an in-force policy should ask the following the questions:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Have family circumstances changed?</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Have the projected income needs of heirs changed?</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Has the projected need for estate liquidity changed? </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Has the suitability of the insurance policies changed?</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Has the performance of the life insurance policies changed?</div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Has the affordability of the life insurance policies changed?</div> <bR> <bR> <div> <I><B>Health</B></I></div> <bR> <div> The insured has experienced a moderate decline in health status since the policy was issued. He or she may have bypass surgery, developed high blood pressure, adult-onset diabetes or some other condition that shortens his or her life expectancy. Ideally, a senior settlement prospect will have a life expectancy of 13 years or less.</div> <bR> <bR> <div> <I><B>Policy Size</B></I></div> <bR> <div> The life insurance policy’s face amount exceeds $250,000. Generally, the higher the face amount, the more attractive the prospect for a senior settlement.  This requirement for large policies has led some to call these transactions “high net worth” settlements.  </div> <bR> <div> Senior Settlements -- Individual Uses</div> <bR> <div> <I><B>Suitability of Coverage</B></I></div> <bR> <div> Policyholders may wish to discontinue a current policy for suitability reasons.  Sometimes a different type of policy would be a more appropriate method to achieve the policyholder's aims,  e.g., changing coverage from a single-life policy to a survivorship or second-to-die plan. A lifetime settlement could prove to be more cost-effective than surrender, or provide for an increase in coverage.  Clearly, the policyholder should explore all alternatives (1035 exchanges, etc.) when replacing insurance coverage -- and agents should follow their state's replacement rules. While technically, under a lifetime settlement the policy does not lapse, it is sold -- agents should follow the spirit of the replacement rules when in-force coverage is going to be "replaced" with a different policy.   Elderly policyholders may be more concerned with day-to-day life than leaving a legacy to their heirs.  By selling their life policies, funds can be made available for the purchase long-term care policies.  </div> <bR> <bR> <div> <I><B>Affordability</B></I></div> <bR> <div> Another reason to consider a lifetime settlement is when the policy becomes too expensive to maintain. Some policyholders purchased policies on the premise that policy dividends would eventually lead to "vanishing premiums".  If policy dividends did not perform as well as expected, the policyholder may now face larger premium payments than were anticipated when the policy was issued.  Also, interest payments on large policy loans may have made it expensive to maintain the coverage.</div> <bR> <bR> <div> <I><B>Asset Redeployment</B></I></div> <bR> <div> One obvious motivation to engage in a senior settlement is to unlock underperforming assets.   With the advent of a secondary market in life insurance, policyholders are beginning to view their life insurance policies in much the same way as other investments.  By selling an in-force policy a viator may be able to exchange an annual premium outlay for annual income in the form of dividends, interest or annuity payments.  Or the viator could use the proceeds to retire debt.  </div> <bR> <div> The existing policy may be producing sub-standard rates of return.  Typically the guaranteed rates of return available on traditional whole-life policies are fairly low.  Universal policies may not be delivering the rates of return anticipated at the policy's inception.  By selling underperforming policies, the viator frees up funds that may be invested more productively.  Policyholders should carefully analyze the comparative risks of the insurance "investment" and the proposed alternative investments before selling the policy.   </div> <bR> <div> Sometimes, policyholder's investment objectives have changed.  For example, a policyholder might decide late in life to undertake charitable planning that had previously deferred in favor of his or her family’s needs. Through a lifetime settlement, it is possible to re-allocate funds now from one planning vehicle to another, using the settlement proceeds to fund charitable gifts or charitable trusts.</div> <bR> <bR> <div> <I><B>Updating an Estate Plan</B></I><FONT SIZE="2" COLOR="#000000" FACE="Times New Roman" > </FONT></div> <bR> <div> Estate plans should be reviewed regularly to ensure that the plan meets the current siutation.  For example, a policyholder may have initially purchased life insurance to achieve the liquidity needed to pay estate taxes, but changing circumstances may have made the estate highly liquid now. If the money that was to be received by beneficiaries at death were now available during policyholder's lifetime, it could be reinvested to maximize asset growth or to purchase alternative risk management vehicles, such as long term care coverage.</div> <bR> <div> If an estate has reduced in value -- for example, though lifetime gifts to heirs or due to declining values in the stock market -- the resulting estate tax liability will be reduced as well. The amount of life insurance purchased for heirs to meet this liability may now be more than is necessary or desired. In addition, lifetime settlement proceeds can be given to heirs or charity during lifetime as a method of reducing the size of the estate, further lowering the estate's tax liability.</div> <bR> <div> An obvious reason to update one's estate plan is due to the death of a beneficiary.  In the past, given the buy-and-hold nature of life insurance, the common response to the death of a beneficiary was to simply name a new beneficiary or allow the proceeds to flow to contingent beneficiaries.  Now, with the advent of senior settlements, the policyholder must ask: Is it prudent to continue the coverage if the primary reason for that policy is no longer alive? Are there better ways to achieve the goals of the estate plan?     </div> <bR> <div> Policyholders sometimes have a need to remove an insurance policy from their estates to avoid higher estate taxes. Removing it simply by transferring it from personal ownership to trust ownership may be subject to the three-year "lookback" rule of Sec. 2035. This rule prevents taxpayers from transferring certain assets simply to escape estate taxes. However, a lifetime settlement is considered a transfer for value and is, therefore, not subject to this rule. </div> <bR> <div> Regardless of the reason why the existing life insurance no longer suits the estate planning situation, the substantial funds that result from a senior settlement can help the policyowner to meet his or her revised objectives. </div> <bR> <div> <I><B>Divorce</B></I></div> <bR> <div> Where a divorcing spouse has a life insurance policy, courts frequently require him or her to name the other spouse as a beneficiary in order to secure an obligation to pay alimony or support.  In other cases, the courts have treated the cash surrender value of the policy as an asset subject to equitable distribution. The cash value is considered a marital asset.  Now, in cases where the policy can be sold, the other spouse can argue that the policy itself is an asset subject to equitable distribution. Lawyers can argue that the true value of the policy is the present value of the death benefits as of today's date, as opposed to the cash value.  If the courts establish that the death benefit is an asset, then it is arguable that it should be treated like pension benefits during a divorce.  Or, the sale value of the policy can just be taken into account in the division of property in the divorce.</div> <bR> <bR> <div> Senior Settlements -- Business Uses</div> <bR> <div> Businesses often use life insurance to help meet business needs. However, since business situations can change dramatically (for example, a family business is sold or a key executive leaves a firm) the need for which the life insurance was purchased may also have changed or evaporated. For these reasons and others, businesses are finding it worthwhile to consider senior settlements. We will begin our discussion of the business applications of senior settlements with some of the reasons why a business may no longer need existing life insurance. </div> <bR> <div> <I><B>Buy-Sell Agreements</B></I></div> <bR> <div> One of the fundamental uses of business life insurance is to fund business succession plans. Under buy-sell agreements between the firm’s owners, the surviving business owner(s) or the business itself agrees to purchase a deceased owner’s business interest from the estate at the time of his or her death. The principal business motivation is to enable the business to continue in existence with the remaining owners in charge. </div> <bR> <div> Despite the existence of a buy-sell agreement and the owners’ intention to continue the business with the existing ownership, things can change. The business owners may sell the business to a competitor, or one or more of the owners may sell their interest to the other owners. Regardless of why a business is sold, the life insurance policies purchased to fund a buy-sell agreement are often no longer needed for that purpose.  The business or partners are left to pay premiums on a policy that has outlived its usefulness.  </div> <bR> <bR> <div> <I><B>Key-Person Insurance </B></I></div> <bR> <div> Businesses frequently purchase life insurance to guard against the loss of an important executive or employee; this type of life insurance application is called key-person insurance. The death benefit is often used to hire and train a replacement and to help replace some of the lost business profits while the new executive gets up to speed in his or her new job.</div> <bR> <div> A fact of business life, however, is that executives often move from company to company or retire. When they do so, their firm no longer needs the key executive coverage that applied to them. If an executive leaves the firm to retire, the company may offer the opportunity to purchase the life insurance policy for its cash value. Often, however, the retiring executive declines the offer because of a reluctance to take on the premium commitment.</div> <bR> <div> Similarly, a key executive may no longer be as critical to the firm's operations when the business grows and the management team expands.   Or if the business is sold or merged, the firm’s new owners may consider the key executive policies covering certain employees unnecessary.</div> <bR> <bR> <div> <I><B>Non-Qualified Benefit Plans</B></I></div> <bR> <div> Life insurance may also be used by a firm to fund an informal deferred compensation plan for an important executive. These plans are often referred to as golden handcuffs because they tend to tie the executive to the company until retirement.   Split dollar plans, executive bonus plans or group carve-out plans represent other "perks" offered to key employees that are funded with life insurance.  Sometimes, however, the executive leaves the firm before retirement and forgoes these selective benefits. When the executive does so, the reasons for maintaining the policy no longer apply. </div> <bR> <bR> <div> <I><B>Suitability</B></I></div> <bR> <div> Even if the business need for insurance continues to exist, the business must be concerned with the suitability of the policies it holds.  As with individuals contemplating a senior settlement, businesses should also periodically review the suitability and performance of their insurance assets.  Does the type of policy owned by the business meet the firm's needs?  For example, a joint life policy owned by the business covering all of the owners might be more suitable  (and less expensive) than numerous individually-owned policies under a cross-purchase buy-sell plan.  Or perhaps the investment performance of the existing policy lags its anticipated returns.  By selling such policies and redeploying the proceeds, a business may be able to still meet its needs and free up capital to fund new ventures or expansion of its operations.   </div> <bR> <bR> <div> <I><B>Debt Repayment</B></I></div> <bR> <div> While life insurance owned by an individual is generally protected from creditors, a policy owned by a corporation is not, and a sale of the policy may be useful for satisfying the claims of creditors.  In a corporate liquidation, creditors want to make sure the trustee realizes the "true" value of the policy.  In a corporate reorganization, the corporation also may want to sell a key-person policy, especially if that person's health has deteriorated.  For businesses facing bankrupcy, using such policies to  raise cash and retire debt may spell the difference between the business' continued operation or dissolution. (After all what good is insurance on the key-person if the business is no longer in existance?) Creditors can argue that the potential sale of a policy should be taken into account in determining a corporation's liquidation value for purposes of confirming a reorganization plan.</div> <bR> <div> Lenders who receive a life insurance policy as collateral after a default may want to liquidate the policy. A lender may want to anticipate this possibility when they draft security agreements covering life insurance policies, by making sure the agreement covers proceeds from a policy sale and gives the lender consent to sell the policy.</div> <div> Such consent may be important because the policy probably can't be sold without the insured person's cooperation, since any potential buyer of the policy will want to review the person's medical records.</div> <bR> <bR> <div> <I><B>Uses for Settlement Proceeds</B></I></div> <bR> <div> Regardless of the reasons why life insurance is no longer necessary, the policyowner (whether a business, stockholder or partner) has traditionally had three options:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">keep the policy in force and collect the death benefit when the insured dies; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">surrender the policy for its cash value; or </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">allow the policy to lapse. </div> <bR> <div> With the emergence of  a market  for “senior settlements“, businesses gained a fourth option: sell the policy to a third party who purchases it as an investment. If the insured has suffered some deterioration of his or her health, the policy may be worth far more as a senior settlement than its cash value. </div> <bR> <div> There are as many reasons why a policyowner of business-related life insurance might want to sell the policy as there are policyowners. However, some frequent uses of the funds provided by the sale of business-related policies include:</div> <bR> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">buying back a business interest from a partner or stockholder; </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">buying out an employer’s interest in a split-dollar policy; and </div> <div> <IMG BORDER="0" SRC="Symb075c00b700dc00000000.gif" HEIGHT="15" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">starting a new business or use the capital to expand an existing business. </div> <bR> <div> There are, of course, many other possible uses for the funds freed up by the policy sale.</div> <bR> <bR> <bR> <div> <I><B>EXAMPLES:</B></I></div> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 285 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="285" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Buy-Sell Policies No Longer Needed</B></div> <bR> <div> A business owner, age 75, has a history of heart troubles, and had major bypass surgery four years ago. He recently completed the sale of stock of his closely held company to a public company for a substantial amount. Ten years prior to this sale, business owner established an irrevocable life insurance trust to fund a projected postmortem buy-out of his stock by his children who actively were working in the business. The trust is funded with a $3 million universal life policy that has not been performing as projected since interest rates have fallen.  (The cost basis in the policy is $900,000 and has accumulated cash value of $1 million). There is no longer a need for this coverage now that the company has been sold. The children who are beneficiaries of the trust and are interested in maximizing trust income.  So they investigated a senior settlement and were offered $2 million or $1,760,000 after tax -- payable to the trust.   (Even though the policy is owned in a trust, because trust income is used to pay premiums on a policy covering the grantor's life, the income in the trust is taxable to the business owner under the IRS "grantor trust rules".)   By eliminating the policy from the trust, the proceeds in the irrevocable trust will now be free of estate taxation.  In effect the business owner transferred $1.76 million to his children estate and income tax free.   </div> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="285" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 231 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="231" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Faciliating a Corporate Takeover</B></div> <bR> <div> Simmons Corporation owns life insurance on its President and CEO totaling $10 Million. The policies are mostly term insurance and the remainder have a cash surrender value of $800,000. Simmons is negotiating the company's sale to a strategic buyer whose last and final offer falls over $1 million short of the desired selling price. Simmons Corporation's lender wants the sale to go through and in discussions with its portfolio management committee has given more than passing consideration to the prospect of discounting its note to help make the sale a reality. Simmons is considering letting the policies lapse because the premiums are very costly and the management is absolutely certain that the company will be sold. The lender, aware of the Senior Settlement market, contacts a prospective buyer of the policies and is offered $1.5 million - a substantial premium over the cash surrender value. After payment of taxes on this transaction, the Simmons Corporation nets $1.25 million, is able to adjust its sale price, the buyer closes the deal and the bank is repaid in full. </div> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="231" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 160 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="160" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Key Person Insurance No Longer Needed</B></div> <bR> <div> A company terminates its CEO. The CEO was ousted by the Board following repeated failures to stem losses. During the first week review of cash needs and company assets, the company CFO indicated it carried "key man" insurance - a term policy with a $3.75 million face value and no cash surrender value. The insured was in his mid 60's and suffered adult onset diabetes and related complicating conditions. This policy had premiums due of $40,000 and the CFO had decided to let the policy lapse. The turnaround advisor called a buyer of these policies and was offered $760,000 pre-tax. Taxes reduced the net proceeds to $614,000. </div> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="160" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 178 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="178" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Hidden Assets in Bankrupcy</B></div> <bR> <div> A Midwestern manufacturer was operating in Chapter 11. As part of the process of submitting operating reports, the management consultant running the business thought she would confirm the cash surrender value of the "key man" insurance policy. She learned the policy had been fully borrowed against and was ready to jettison the policy because its annual premium was coming due. However, the bank's portfolio manager had read something about the possibility of converting the policy to cash. At the time of review, the insured was a 64-year-old in relatively good health and with no significant medical problems. The policy had no cash surrender value. The $750,000 policy was sold for $80,000 net of taxes. </div> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="178" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <div> <TABLE BORDER="2" CELLPADDING="7" CELLSPACING="1" WIDTH="690" BORDERCOLORLIGHT="#C0C0C0" BORDERCOLORDARK="#808080" FRAME="BOX" RULES="NONE" ALIGN="BOTTOM" HSPACE="0" VSPACE="0" BGCOLOR=#FFCC66 > <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 160 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="160" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP BGCOLOR=#FFFFFF WIDTH="594"><div> <B>Found Money</B></div> <bR> <div> A $4.25 million term policy is held by a company which is experiencing cash flow difficulties. Those cash flow problems have just been compounded because policy premiums ($15,000 per annum) are significant and increasing. The policy is no longer needed because the insured is retiring in a few months and his young successor will need to be insured separately. The company decided to let the policy lapse because of the nearly three fold increase in next year's premium. A Senior Settlement was pursued on the suggestion of the company's banker. To the company's surprise, the policy was purchased for over $800,000 -- a policy with no cash value. </div> </tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="160" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> <tR> <tD VALIGN=TOP HEIGHT= 19 WIDTH="17"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="17" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="594"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="594" HSPACE="0" VSPACE="0"></tD> <tD VALIGN=TOP WIDTH="27"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="19" ALIGN="bottom" WIDTH="27" HSPACE="0" VSPACE="0"></tD> </tR> </TABLE></div> <bR> <bR> <bR> <bR> </td> </tr></table></body>