CASE STUDY: Failing policy due to the underperformance of cash values

Posted by Anonymous on Fri, Oct 31, 2008 @ 12:05 PM

Here we have another classic example of a failing policy due to underperformance of cash values and higher-than-expected cost of insurance. The existing plan was in jeopardy of lapsing. Increasing the premiums from $50,000 per year to $103,000 was simply not an option the client wanted to consider.

Scenario

84 y/o female

Current coverage: $2,000,000 (2 universal life policies)

$1,500,000 (1993, Standard)

$500,000 (1993, Preferred)

Cash Value: $230,000

$1,500,000 = $80,000

$50,000 = $150,000

Current annual premium: $50,000

$1.5mm = $35k

$500k = $15k

Policy will fail at age 88 based on current rates

Annual premium required to extend current coverage to age 100: $103,000

$1,500,000 = $88,000 (non guaranteed)

$500,000 = $15,000 (non guaranteed)

Solution

Provada was able to negotiate a life settlement of over $200,000 for the client’s $1.5mm policy; more than doubling the current policy’s cash value of $80,000. We combined the proceeds of the life settlement along with the cash value of the second policy for our new plan.

After considering the various options available, our client decided on a new, guaranteed, single premium policy. A preferred rating was obtained on the new policy due to our relationships with over 40 different life carriers.