continued…

Life Settlements Provide Cashfor Key-Person PoliciesMany small and medium-sized busi-nesses have one person who is crucial tothe organization. If that person were toleave, the company could fail. For thatreason, companies frequently purchase“key-person” policies to safeguard thehuman and financial assets of a business,and to protect against such a catastrophe.

When an insured essential personretires or resigns, the company typicallycancels its corporate-owned policy andtakes the cash-surrender value, if any isremaining. Life settlements (also knownas high-worth transactions) offer thecompany a new, viable, and attractiveoption: sell the policy, be rid of anyfuture premium obligations, and receivea lump sum of cash well above the cash-surrender value.

Secondary market allows key-person policies to generate cashLife settlements can assist companies indealing with several possible scenarios. Insome cases, a leading employee will retire,and the company may offer to transferownership of the key-person policy to theretiree. Such an offer is typically declinedbecause the retiree does not need thepolicy or the obligation of making high-premium payments.

There may also come a time when thekey-person policy is no longer needed.The executive may become less criticalto the business because the aptitudes ofothers have improved or the businesshas been sold.

When a business merges with anotheror is acquired, key-person policies oftenbecome assets of the new entity.Indispensable executives of the acquiredbusiness may not be valued as much bythe new business.

In the past, companies facing thesesituations were left with three choices,depending on the type of policy:

1)Recover some of the investment andsurrender the policy for its cash value.

2)Allow it to lapse, and write off yearsof premium payments as a necessarybut unrecoverable business cost.

3)Continue to pay premiums on thepolicy until the death of the insuredperson.

Many times, a better alternative for thecompany is to investigate the advantagesof selling the policy through a lifesettlement broker. If it is a policy withcash value, it may be likely that the salewill provide more than the cash value.

If it is a term policy that qualifies for sale,funds can be obtained from a policy thatpreviously had no intrinsic value.

How life settlements workLife settlements are based on the prop-osition that some insured individuals nolonger want, need, or can afford theircoverage. Instead of selling the policyback to the issuing insurance companyat less than market value or allowing thepolicy to lapse and forfeiting the value,life settlements allow another exitoption that can maximize the cash valuefor the policy owner. Consequently, lifesettlements have quickly developed intoa viable and attractive alternativeproduct.

In a nutshell, the life settlementprocess works like this: A life insurancepolicyholder sells the benefits of thepolicy to an investor. Most investors donot directly negotiate with pol-icyholders; rather, they provide fi-nancing for life settlement companiesthat facilitate the buying of the policies.According to a June 5, 2003 article inUSA Today, approximately 25 percentof key-person policies can be sold toinstitutional investors in the secondarymarket.

By LARRY SIMON

NATIONAL EDITION OCTOBER 2005

As seen inReprinted with permission . For Producer Use Only — Not For Use With The Public

PUBLISHED BY

1255 Cleveland Street, Suite 200Clearwater, Florida 33755-4910

(800) 933-9449Fax: (727) 446-1166www.AgentMediaCorp.comEmail: Sales@AgentMediaCorp.com

agentmediaagentmedia™

have paid life insurance policy ownersan aggregate of over $1 billion morethan cash surrender for their policies.

Agents and brokers should performdue diligence by gathering informationfrom several competitive life settlementcompanies, targeting those whosesenior management has had the mostlife settlement experience. Germancompany Scope Group rates and rankslife settlement companies — the firstand, so far, only company to do so —and offers information at www.scope-group.com. The settlement broker oragent should seek companies with an Arating or higher.

Larry Simon is director, chief executive officer,and president of Life Settlement SolutionsInc., based in San Diego. Life SettlementSolutions and its management have anestablished industry record, havingpurchased life insurance policies in excess of$1 billion aggregate face value to date. Forfurther information regarding Life SettlementSolutions, call 858-576-8067 or visitwww.lss-corp.com.

the investor must maintain all premiumpayments in order to keep the policy inforce. The concept is much like the buy-ing and selling of mortgage contracts.In this instance, an insurance contractis bought and sold with the investoracquiring both the beneficial interest inthe contract and the obligation toprovide for servicing and admini-stration of the contract.

The market opportunity exists pri-marily as an alternative to surrendervalues payable by life insurance com-panies when a policy owner decides toredeem or cash in the policy. These sur-render values are often so low that aqualified life settlement providercompany can pay a higher value.

Finding the right lifesettlement companyThe future looks good for the life settle-ment industry, which has grown signifi-cantly in recent years. The Life Settle-ment Institute released statistics in April2005, indicating that life settlements

Policies considered for purchase bylife settlement companies must meetcertain eligibility requirements. Typicalcriteria formed with the life settlementcompanies or investors include:

• The policy must be beyond any carrieror statutory contestability period,fully renewable and subject only tothe payment of premiums.

• The insured’s life expectancy must bebetween 25 and 144 months based onone or more medical evaluations froman approved evaluator.

• Term policies must have a minimumterm life insurance coverage equal tothe greater of two times life ex-pectancy or 10 years.

• The face value of such a policy cannotexceed $20 million.

If the business accepts the life settle-ment company’s offer, the businessrelinquishes ownership and beneficialinterest in the policy in exchange for acash payment. As the new policyholder,