The value lies in the insurability of an age-bracketed group of seniors. Value is not created, but utilized. The relative infancy of the robust secondary market has created an opportunity to provide certain seniors with a unique alternative financing program to purchase life insurance that would otherwise not be used.

The opportunity is driven from the demand for life insurance policies by investors in the secondary market and created through the cost of insurance available in the primary market. The demand in the secondary market in the case of some potential insureds has caused the value in the secondary market to well exceed the value in the primary market. This means that in some circumstances, the premium payments demanded by life insurance companies for the first two years of the policy life are less than the anticipated resale value in the Life Settlement Market.

How is the policy financed?

Generally, the premium payments are financed through the creation of a Trust. The investor funds the Trust with sufficient capital to make timely premium payments throughout the first two years of the policy. This is accomplished through a two-year, collateral specific loan to the Trust (two years is the minimum period of effectiveness required for sale into the Life Settlement Market).

During its term, the loan is secured by a collateral assignment against the life insurance policy, whereby the borrower has assigned all rights, claims, options, privileges and interest in the funded insurance policy up to the value of premiums paid to that date. The collateral assignment of the policy ensures that its loan will be repaid in the event of premature death (death during the two-year premium loan term).

On the anniversary of the second year, the insured has the option of repaying the outstanding loan balance and assuming premium payments, or completing a Life Settlement. This provides the insured with a two-year financing option period, at the end of which the Insured can decide whether or not to continue coverage.

What are the risks to the Insured?

Through the formation of the Trust, the financial risks to the Insured are practically non-existent. Because the investor is funding the Trust under a collateral specific loan secured solely by the life insurance policy owned by the Trust, the Insured has no financial liability on the loan.

There is always the possibility that the policy owned by the Trust will not be sellable at the end of two years for an amount that exceeds the loan balance. If this occurs, the Insured has no financial liability on the loan. Although the Insured, their estate, or their preferred charity would not receive any proceeds from the program in such a situation, they would not have any liability for the loss of the outstanding loan balance.

While there is no direct financial risk to the Insured, depending on the facts of his or her specific situation, it may substantially limit his or her ability to later obtain additional new life insurance. Remember, an individual’s insurability is limited to his or her total net worth.

Who qualifies for the program?

The primary candidate for this program is the high net worth ($3,000,000 to $50,000,000 in assets) senior between the ages of 67 and 85, without life insurance coverage or with coverage that is significantly below his or her net worth. The candidate must be in decent health, qualifying as at least a Standard or Preferred medical risk for life insurance. This is not a viatical transaction, which typically deals with terminally ill individuals with less than 24 months to live.

What type of payment can I expect if my policy is sold in the Life Settlement Market?

Assuming the Insured elects to sell his or her policy at the end of the two-year period, the payout to the Insured is dependent on many factors that cannot be guaranteed. These include, but are not limited to: the financial performance of the underlying insurance policy, ongoing interest rates, and the fair-market value of the policy in the Life Settlement Marketplace in the future.

What companies are involved in the Life Settlement Market?

The Life Settlement Market has evolved significantly over the past several years due to an increase in sophisticated institutional funding. This funding has brought new quality standards, consumer protection and transactional discipline. Recognizing the potential for success, a number of large institutional investors have committed billions of dollars to purchase Life Settlements, including: Berkshire Hathaway, GE Capital, Merrill Lynch, Barclays Capital, Zurich Financial, and others.

What are the tax consequences?

We do not give tax advice and recommend all program participants consult their own estate attorney, tax attorney or CPA. Senior Life Settlement proceeds would typically be taxed as long-term capital gain to the extent that the proceeds exceed the premiums paid for the insurance policy. This or other income can obviously be offset through donations to charities. Moreover, through the use of the Trust, the normal mechanisms for isolating the Insured, the Insured’s family, and charity beneficiaries from tax and other liabilities can be utilized.

Regency Premium Finance will work with the Insured and their estate planner to ensure the Trust is set up in a manner that will provide the Insured and the beneficiary with the desired outcome while affording the best available protection.

What is the process of implementation?

The first step in the process is to fill out an application. The application is simple, but provides Regency with sufficient information to reasonably evaluate potential candidates. The application requires the applicant to release his or her medical records, and also requires a statement of the applicant’s net worth.

Within approximately 3 weeks, Regency will process the application and make a preliminary determination as to the applicant’s qualifications. We use a proprietary valuation model to analyze competing policies offered by different life insurance providers. Our acceptance of an applicant is based on identifying policies that offer significant opportunities.