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How Much is Your Client’s Life Insurance Policy Really Worth?

February 17 2014

Navigating the often complex road to a divorce is a team exercise involving the parties, their attorneys, divorce coaches – and qualified divorce financial experts like Certified Financial Planners and Certified Divorce Financial Analysts. There are even certain times when outside specialists should be included to provide valuable insights to the team to ensure all available options are being considered when serving the client. By pooling the expertise of a team, a party can rest assured that every option will be exhausted in reaching a favorable settlement.

An excellent example is the process of providing a Florida Family Law Financial Affidavit. A party’s attorney may list the value of a life insurance policy as the same as the cash value of the policy, however this life insurance asset a policy may can often haves substantially more value than originally thought that. People are living longer and with changes to the estate tax exemption and more immediate needs for liquidity, determining the fair market value of a policy has never been more important.

Many life insurance policies for people 70 or older are worth more than their face values would indicate, including Term policies. The sale of an existing policy to a 3rd party is known as a life settlement, a highly regulated and transparent process. I recently spoke with Jon Mendelsohn, CEO of Ashar Group, a national licensed firm in the life settlement market. He shared an example how, a $1 million Universal Life insurance non-term life insurance policy that might have a cash value of $25,000 – but could likely potentially be sold to a 3rd party buyer for as much as $300,000 or more. The sale of an existing policy to a 3rd party is known as a life settlement.

That difference of $275,000 would be inadvertently forfeited by an attorney who does not exercise due diligence in looking into the true value of a client’s policy.

The key to this type of transaction is that the policyholder is selling the policy for more than its cash surrender value, but less than its net death benefit. There is a growing industry of institutional companies’ buyers, including some leading domestic and global pension plans, private equity, and hedge funds that are willing to pay large sums for these policies.

Even those who currently have term life insurance may be able to benefit from the advantages of the open market. Many of these term plans have a “conversion feature,” which can allows the holder to turn them into permanent policies, either whole life or universal life. Once converted, these plans could then be sold as life settlements for more than their cash values.

If you are considering working with a CERTIFIED FINANCIAL PLANNER™ Certified Financial Planner (CFP®) or a Certified Divorce Financial Analyst (CDFA), contact us. We will conduct a thorough evaluation to find out exactly how much your client’s policy may really be is really worth  – and help you to answer the most important question of all to your clients:

Will I have enough to live on after divorce?

Divorce planning services offered through Cary Stamp & Company and fixed insurance products and services offered through Lincoln Park Financial Group, LLC are separate and unrelated to Commonwealth