The Value of Competitive Bidding
It was somewhat surprising that a $100,000 life insurance policy created such interest. Even though it was a relatively small policy, the competitive process is alive and well in the private equity industry. In addition, possibly due to the insured being an 88-year old Florida man with some health issues, the bidding was very competitive. Nevertheless, it was very satisfying to see our client achieve such good results from an insurance policy he had paid on for 10 years.
Very few people, and their financial advisors, are aware that one can sell their life insurance policy (no longer having to make premium payments) while obtaining cash now. Oftentimes the original intention of purchasing the policy changes over the years. That, along with a need for liquidity is driving thousands of seniors to consider a life settlement instead of allowing their policy to lapse or settling for the cash surrender value.
In this particular case, our client’s four children (beneficiaries) were made aware of the sale by our client, whose plans for the funds included staying in his own home and paying for 24-7 care. Not wanting to move into an assisted living facility, the funds from the sale of the insurance policy provided him the cushion he desired by allowing him to stay in his home turning it from a death benefit to a life benefit.
With a cash surrender value of $11,000, the client could have surrendered the policy and received the cash. But, he elected to use BrightPath Financial’s competitive bidding process to determine if he could earn more than the cash surrender value.
The medical underwriting process indicated that an 88-year old man should live another 6 years. But, due to his health conditions, it was determined that his life expectancy was 5 years. With this information, along with his universal life policy, the competitive bidding process began slowly.
The first bid came in about one week later, it was for 22% of the face amount of the policy; not bad – double the cash surrender value. The first bid is oftentimes a low one; luckily that was the case here. Four additional bids came in over the next two weeks of 26%, 32%, 36% and 42%. I talked to the client about the final bid of 42% and he accepted the offer. These five bids came from four different firms; it’s always great to see firms increase their original bid!
While the paperwork was being processed, one of the original bidders increased their bid; the client was elated to hear that a final offer of 44% was made. He accepted it immediately.
This case clearly provides the value of competitive bidding. One bid does not a market make! Whatever you may be purchasing or selling, a competitive market can provide you greater value. As illustrated in this case study, using a professional to obtain the best price for you and your clients is the best practice.
For more information
DOWNLOAD OUR BROCHURE
|
