Cashing in on a Life Well Lived 3

How an early life settlement can put money directly into your pocket.

By Kevin Yurkus, President, Fairway Capital

The data is in, and it’s not pretty.

On Dec. 1, 2008, we got news that the U.S. economy officially had slipped into recession.

Unfortunately, that recession began a full year earlier. According to the National Bureau of Economic Research, the economic expansion that began in November 2001 reached its climax in December 2007.

To this I say: tell me something I don’t know.

The fact is that during the past year, anyone reading a newspaper, watching the news or just plain awake knows the kind of dire straits the economy and the financial markets have been mired in for the entirety of 2008.

The problems in the economy and the concomitant decline in the equity markets — with many of the major market indices down over 40% on the year — has many investors scratching their heads in search of some kind of positive cash flow. And while there isn’t too much you can do about the troubled asset class that is equities, there is one asset class you probably already own that could put a nice chunk of cash directly in your pocket.

No, I’m not talking about the old gold jewelry you have lying around that you no longer wear. I am talking about something I suspect you already have — a term life insurance policy.

According to industry estimates, approximately 73 million Americans currently have life insurance policies. I doubt, however, that many people realize just how powerful a weapon your policy can be in the battle for maximum wealth appreciation. Fortunately, there is a strategy you can use to help get you through the current market malaise, and it involves what I call "maximizing" your term life insurance policy.

If you’re like me, I suspect that you have a low-cost, term life insurance policy sitting in your desk drawer. In most cases, those term policies expire without paying a benefit. When the term is up, we simply allow our policies to cancel. After all, what other option do we have?

Fortunately, that term policy doesn’t have to be a melting asset. In fact, did you know that you have the option of selling an expiring term policy for cash? That’s right; there are firms out there that will buy your term policy from you.

Thanks to a burgeoning secondary market for term life policies, where Wall Street institutions such as Deutsche Bank, Credit Suisse, Berkshire Hathaway and others actually pay policy holders cash to purchase their life insurance policies, you can take an expiring asset and transform it into cold, hard cash.

My firm, Fairway Capital, helps investors sell their life insurance policies in the open market. Now, some of you likely have heard of these so-called "life settlements," but you may think that they are only aimed at a certain elderly demographic.

While it is true that traditional life settlements are aimed at older policy holders, we now have what is called an "early life settlement," which is aimed at younger term life insurance holders who wish to convert their policies into cash.

And what kind of money can an early life settlement put in your pocket?

Well, the answer varies, but the range for payment on an early life settlement is between 1% and 3% of the face value of the policy. Let’s look at a few real-world examples to see how these early life settlements work.

I recently worked with a 58-year-old gentleman who had a 30-year term policy that was about to expire. The face value of the policy was $750,000, which he purchased largely to cover the cost of his mortgage.

He had three options to deal with this expiring policy. First, he could let it expire. Not a very satisfying option, I agree, but the most common. Second, he could convert the policy into a universal life insurance policy. The only problem with this option is that he’d have to pay premiums that are about eight times greater than what he had been paying. The third option was to sell his policy via an early life settlement, which he did, and in doing so he put $7,500 straight into his pocket.

In another case, I worked with a 63-year-old man with a $3 million term policy designed to cover his business, as he was the key man in his organization. This gentleman had retired recently, sold his business, and therefore no longer possessed the need for the $3 million death benefit.

Initially, he was just planning on letting the policy expire. But with an early life settlement, he was able to sell the policy for $60,000.

Finally, I had a 68-year-old client with a $1 million policy designed to protect his family and replace any loss of income in the event of his death. The policy was set to expire in about two years. But due to the current economic environment, this gentleman was in need of an immediate cash infusion. My company was able to show him the power of life insurance as an asset by facilitating the sale of his term policy for $30,000.

You don’t have to be a particularly savvy investor to realize that sometimes it just makes sense to transform your life insurance policy into a tangible financial asset.

The fact is that these days, thanks to early life settlements and the growing secondary market for life insurance policies, your policy doesn’t have to be a wasting asset. And let’s face it, given the current decline in traditional asset investment instruments such as stocks and mutual funds, now could be the best time ever to turn your term insurance policy into cash.

About the Author:

Kevin Yurkus is the president of Fairway Capital, a leading life insurance and financial services firm based in Newport Beach, Calif, serving clients nationally and internationally. Fairway Capital specializes in innovative solutions tailored to high net worth senior citizens, ranging from estate planning to life settlements. Contact Kevin at 800.338.1035 or see the firm’s Web site.