Selling Your Life Insurance Policy for Medical Expenses

Buy Life Insurance in the Past? Ever Consider Selling Yours to Cover Medical Expenses?

Costly Long Term Healthcare, Old Life insurance Policies, and Using One to Pay for the Other

1 November 2011 by Clark Hogan, Managing Director, Opulen Capital

Life insurance policy settlements present a viable option under certain circumstances; especially in the last decade or so as Americans live longer and rely on more medical technology advances and prescription drug cocktails in doing so.

Situation at Hand

Medical science advancements have come a long way. What were once lethal illnesses are commonly treatable today thanks to research and development efforts of the medical / biotechnology industries on a global scale.

Good doctors and innovative procedures keep senior citizens alive, sure. Prescription drug-addicted and living a lower life quality longer, sure. What comes with it are financial and physiological costs. Social Security has its limitations; especially for middle-class elderly after barely covering day-to-day expenses after taxes on popular government-endorsed retirement programs including 401-K and Individual Retirement Accounts.

Healthcare providers practice defensive medicine methods including extensive composite testing, troubleshooting, ongoing follow-ups, experimenting with drug combinations. The costs of above instances, ongoing follow-ups, and experimenting with drug combinations are justified as being cautious and thorough with costs passed on to patients or their insurance companies.

"In an increasingly litigious society, physicians feel compelled to engage indefensive medicine to shield themselves from possible malpractice lawsuits", assesses David Levine, MSW, Ph.D. and Professor of Sociology at Florida Atlantic University in Boca Raton. Adds Dr. Levine, "If sued, physicians can then document that they took all necessary precautions. Consider a patient who reports blood in the stool. The physician examination reveals a bleeding hemorrhoid. A physician practicing defensive medicine would order a gastrointestinal (GI) series—even in the absence of other symptoms--and thus be able to demonstrate that all possible avenues were pursued."

Hospitals are capitalist organizations like any other. They heal and treat illness...for money.

Correlation: Life Insurance Settlements & Paying for Healthcare

70% of American households own life insurance (Life Insurance Marketing Research Association. "Life Insurance Ownership Study". 2010). Over 10,000,000 policies will be issued this year collectively in the U.S. despite a recession / slowed economy / slumping economic cycle; historically, life insurance companies issue closer to double that in a given year.

Business-owned life insurance. Organizations from partnerships or family-run small businesses to Fortune 50, publicly traded and private alike, purchase life insurance policies on key employees. In the event of an untimely death, policy proceeds are used to cover costs associated with hiring a replacement and making management adjustments for a lost asset. Unused business-owned life insurance is among the most prevalent sources of a life settlement.

According to Paul J. Pichie, Thousand Oaks, California-based expert in advanced life insurance markets including business and entity-owned policies: "Keep things simple. Always weigh the pros and cons of [a life insurance] policy exchange or settlement. Often, it is basic arithmetic.". Mr. Pichie, who works with the highest rated life settlement agencies and insurance companies in the country on behalf of his private clients, offered his methodology for best practices in selling obsolete or costly BOLI policies: "Pros: When a senior qualifies for a life settlement transaction, the proceeds can be significantly more than its cash surrender value. If insurable, we can significantly reduce or eliminate the ongoing premium expenses. If not insurable, we will increase cash assets on [a client's] corporate balance sheets and the premium expenses are eliminated."

The Cons?

"Settlement transactions often yield more than the premiums paid to the selling entity / policy owner, thereby creating a taxable gain in relation to the transaction. A high-class problem to have, however, always take taxes into consideration thoroughly", recommends Mr. Pichie.

Debt collateral. Financial institutions such as mortgage lenders and credit companies often insist borrowers maintain life insurance for the duration of a transaction to guarantee debts are repaid even if a borrower dies before paying off an outstanding balance.



Charitable giving. The Internal Revenue Service allows life insurance and annuity policy owners to deduct the market value of policies donated to a charitable or non-profit organization.

Accountants and investment advisors speak with many clients interested in donating to a charitable cause, non-profit organization, or religious organization.

Donating an unneeded life insurance policy presents a convenient, often more viable alternative to writing a large check.

Family financial protection. Probably the most common type of life insurance sold in the U.S.. This insurance appeals to the masses and is usually term life insurance bought specifically to provide cash one's family in the event of an untimely death of a breadwinner. It exists to pay for necessities such as food and shelter.

The above circumstances are legitimate reasons an individual consumer, organization, or family trust might own life insurance policies. Some are merely temporary and therefore interest and suitability change over time rendering policies no longer practical, sensible, or affordable.

Paradigm Shift

Simple: when facing the dilemma of paying for healthcare costs, most pay for it with a combination of resources including:

A. Liquidate savings / investment holdings to cover what Social Security does not

B. Downsize / cut daily living expenses

C. Go without healthcare or insurance and take chances untreated

D. Go into debt with credit companies / mortgage holder

E. Arrange assistance from relatives / children

Below examines three common instances whereby the life insurance settlement was a critical resource for a consumer and family.

Case I.

Female, 94 years old owns $150,000 permanent life insurance policy with $26,000 of cash surrender value at time of appraisal

Policy premiums of $13,000 unaffordable factoring costs of treatment for coronary artery disease and assisted living facility & medication

Subject's daughter concerned by policy purchased in the late 1970s designed to lapse at age 95; (common given National Institute of Health & U.S. Census Bureau lifespan projections of the time).

Daughter and son-in-law request their financial advisor investigate policy settlement options

Opulen Capital appraises, underwrites, and produces $60,000 net settlement to client within 61 days

Case II.

Female, 81 years old. $6 million universal life insurance policy owned by her life insurance trust with zero cash surrender value from the insurance company at a cost of $283,000 per year

Subject had developed dementia since policy put in force less than six years prior

Bank trust officer conducted annual assets review and recommended liquidating or surrendering of policy to prioritize living expenses versus monies tapped for grandchildren via the large policy

Opulen Capital appraises, underwrites, and produces $513,750 net policy settlement under compliance guidelines with CA state insurance department and bank trust department due diligence regulations

Trust maintains cash sum and no longer responsible for $283,000 premium payments

Case III.

Male, 89 years old owns $2 million cash value / whole life insurance policy taken out as an advertising agency partner almost 30 years ago

30 years of premium payments plus compounding interest yielding hefty $490,000 cash surrender value by insurer and no future premiums scheduled

In the interest of thoroughness, consumer's now-retired stock broker suggests life settlement appraisal given subject's age and current need for long term medical attention (years of smoking-induced emphysema and chronic angina)

Opulen Capital delivers investment bank buyer offering $627,000 net settlement sum with proceeds paying for wheelchair, cardiology testing, ongoing home healthcare

The life insurance policy settlement is a niche player which serves a very legitimate and realistic purpose insofar as a family having to make tough economic decisions when paying for long-term health care or medical bills arises.

In Conclusion: Conversation with your Investment advisor / Attorney / C.P.A.

If nothing else, speak to your insurance agent or investment advisor. Opulen Capital's expertise, as an industry leader in life insurance policy settlements, is buying unwanted and unneeded policies from individuals, family trusts, and businesses interested in selling them for a higher amount than the surrender value / buyout by the issuing insurance company