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Improving the Lives of Your Clients

FUNDS FOR LIVING: A Case Study

Clients That Don’t Reach Their Life Expectancy Can Save Thousands With A Funds For Living Advance

The Scenario:  What if your client passes away sooner than expected?

You may be looking into a life settlement as a financial option for your clients dealing with serious illness.  But in some cases, a policy sale can leave your clients and their families significantly shortchanged.

Mr. Nelson was a 90 year-old male diagnosed with Stage IV prostate cancer.  He owned a term life insurance policy with a death benefit face value of $1,390,000.  As his medical expenses increased and his life insurance premiums began to rise dramatically, Mr. Nelson and his family felt financial pressures and began to look for solutions to ease the burden.  “When he was diagnosed with cancer”, Mr. Nelson’s son wrote, “the medical and hospital expenses, coupled with the rising cost of the life insurance, drastically increased his stress and worry over the loss of the investment and the legacy he would leave.”

The family approached a life settlement broker about a potential policy sale.  Medical underwriting was ordered, which produced a life expectancy report of approximately 21 months.  The broker shopped the policy in the marketplace, and the family received offers in the range of $350,000 to sell the policy outright.

Concurrently, the broker also reached out to Fifth Season Financial about their life insurance policy advance program, now called Funds for Living. By structuring the program around an advance vs. a loan, the broker hoped to provide an option that would provide enough immediate financial assistance while also preserving some funds for Mr. Nelson’s family beneficiaries.  Fifth Season offered an advance of $230,000; all fees and interest would be paid later out of the policy proceeds.  And as a loan rather than a sale, the advanced funds were non-taxable.  After careful review, Mr. Nelson and his family chose to work with Fifth Season and take out a Funds For Living advance.  In their words, “we were not only able to keep the policy benefits intact by remaining owners of the policy, but our family was relieved of the uncertainty and financial burden caused by the rising premiums.”

Much to the family’s surprise, Mr. Nelson’s health deteriorated more rapidly than expected, and he passed away a mere four months after the completion of the Fifth Season transaction (about 17 months earlier than his life expectancy).  After calculating fees and interest, the family received an additional $1,018,403 beneficiary payout that would not have been realized with a policy sale:

Funds Offered Beneficiary Payout Total
Life Settlement Offer $350,000 sale $0 $350,000
Fifth Season Financial $230,000 advance $1,018,403 $1,248,403
($898,403)

Because he passed away earlier than expected, Mr. Nelson and his family saved nearly $900,000 by doing a Funds For Living advance with Fifth Season versus selling the policy.  While this would have resulted in a windfall of profit for the life settlement company, the family was significantly better off financially by working with Fifth Season than selling their policy.

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