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Hidden liabilities come at us every day. The car needs a big repair, a hefty medical bill after an emergency room visit for a sick child or your mortgage payment jumps with climbing interest rates. But what about finding some hidden assets that can be turned into some cold hard cash that can be invested, spent or given to family or a charitable organization?
"Find me some hidden assets" - you may be thinking. One big one may be gathering dust in a box on the top shelf of your closet – your life insurance policy. Think about it. You paid premiums all those years and you own it. It is an asset even if the policy has no cash value. The selling of life policies in the secondary market is called life settlements and it is growing fast. Sadly, many seniors let their unneeded or too expensive policies lapse each year without even hearing about this better option. This is no crackpot scheme. Here is what two leading publications say about the matter. The Economist, May 17, 2003 “….elderly Americans with policies they do not need or cannot afford to keep have had little option but to let the policies lapse or sell them back to their insurers. On average they can get three times as much from life settlement firms as they can from their original insurers.” The Wall Street Journal, September 21, 2004 “Owners let nearly 90% of all term policies lapse…What policyholders sometimes don’t realize is that a policy is an asset that has market value… the value of a life settlements transaction is generally at least three times the underlying cash value of the policy.” I first learned about the option of selling a life policy when my father in Milwaukee sold his policy about ten years ago. His seven children were all grown up and his policy premiums were escalating each year. He sold his policy for more than he imagined and used the proceeds to invest in mutual funds and for a down payment on a condo in South Carolina to escape the cold Wisconsin winters. Many others use the proceeds from selling their policies to purchase a better lower cost life policy, invest in a long-term care policy, build up their nest egg or just give the money to their children or a favorite charity. Who can sell their policies, what is the process and how is the value of a policy determined? I spoke with Centennial Funding LLC Managing Partner Ed Kaffel about these questions. According to Ed, with some exceptions, only seniors over the age of 65 will likely be able to sell their policies which must be owned for at least two years. In order to determine the value of their policy, the insured needs to complete an application including a copy of the policy and authorize the release of their medical records. This file is then reviewed by say twenty corporate buyers of life policies that then can make cash offers based on the owners age, health and the economics of the life policy. Even term policies may qualify. There is no need for the insured to make an up front commitment to sell the policy and no requirement for a health exam. Once an offer is received for a policy, the owner can accept or reject it. You can ask Ed about your situation by calling him at 719.785.4866. Just what can be the value of this hidden asset? Every situation is different but here are two examples. Male: Age 67
Health Issues
Face Amount: $350,000
Cash Surrender Value: $24,474
Offer: $136,000
Female: Age 78
Face Amount: $1,000,000
Cash Surrender Value: $42,000
Offer: $260,000
You can see that this is something worth looking into if you no longer need your policy and can put the proceeds to good use. Charitable organizations are now able to convert donated life policies to cash to fund projects now rather than later.
A life settlement is certainly not for everyone but everyone should be aware of the option of turning a life policy into cash right now. Carl is President of the global investment advisory firm Chartwell Partners. He is a columnist on global investing with Forbes and writes the “Global Gambits” column for Forbes Asia and is also the editor of the Chartwell ETF Global Advisor investment newsletter and the http://www.ChartwellETFadvisor.com advisory website. He is the author of “Think Global, Grow Rich” and “The New Global ETF Investor” and, during the administration of George H.W. Bush, served on the Executive Board of Directors of the Asian Development Bank in Manila, Philippines. Carl was a Vice President and opened Asia-Pacific markets for the investment bank Robert W. Baird & Company and a global ETF specialist with the Union Bank of Switzerland (UBS). |
