Universal life policies are notorious for being underfunded which inevitably leads to a significant escalation in annual premiums costs in order to maintain the policy to maturity. If the policy is no longer needed, or has become unaffordable, and is going to be lapsed, be sure to check for fair market value before lapsing or surrendering the policy. The liquidity uncovered in the life settlement process can be a game changer by helping senior clients recoup some of the money spent on premiums so that they can invest that found money for retirement planning needs.
Case Example | Trust Owned Policy-Lump Sum Life Settlement
An 81-year-old female had been told at the time of policy purchase in 1988 that her policy would have a double-digit internal rate of return. This did not happen and now she finds herself faced with a decision to make. Should she fund it, restructure, surrender, or explore other options?
• Female age 81, 3 million Trust Owned Universal Life purchased in 1988
• Underfunded with only $48,000 cash surrender value remaining
• In the fall of 2013, the carrier notified her that premiums would
increase by $150K annually if she wanted to keep the policy in force.
Instead of surrendering the policy for $48K she completed a life settlement
and received a lump sum payment of $1.1 million. Most of this “found money” was invested with the planner that helped her uncover liquidity in her unneeded UL.
