LIFE SETTLEMENTS

THE INDUSTRY

Benefits resulting from the rapidly emerging secondary market for life insurance have
revolutionized the way agents and financial advisors conduct business. This rapidly
emerging secondary market for life insurance is expected to surpass $14 billion in sales
volume this year alone. According to a report issued in 2003 by Conning and Co, the total
value of life insurance policies held by senior citizens was $500 billion, 1 creating the market
potential for life settlements at an estimated $100+ billion.

WHAT IS A LIFE SETTLEMENT?

A Life Settlement is the sale of an unwanted or ineffective life insurance policy to an

institutional third party for an amount greater than the cash surrender value of that policy.
Often times the policy’s fair market value substantially exceeds the cash surrender value
determined by the issuing insurance carrier. Provada has partnered with the world’s top
institutional buyers of life insurance policies to insure our clients receive the best possible
offers for their life insurance assets.

There are many reasons why an individual, business client, and/or trustee should consider a
life settlement. For some, there is no longer a need or desire for the death benefit. For
others, the need for insurance continues but a newer, more efficient policy may do a better
job. In such a case, new life insurance can be obtained for a reduced premium, or the
current premium can be maintained with a longer death benefit guarantee.

PROSPECTS FOR LIFE CASE STUDIES

SETTLEMENTS
Replace Policy
$500,000 face UL Policy
The value of a life insurance policy is $10,000 cash value
determined by a number of factors, including, $6,500 premium
but not limited to, the medical condition and Female age 74
age of the insured, type of insurance policy, Results
The top offer was for $148,000. The client used
rating of the issuing insurance company and the proceeds to purchase an insurance policy that
amount of premium payments to keep the life will not fail. Her premium payment is now
insurance policy in force. The typical life affordable.
settlement candidate is a senior with a life
Key-Person Policy
expectancy of 20 years or less. He or she has $10,000,000 10-year term policy
a permanent or term (if convertible) life $0 cash value
insurance policy with a face amount of at Male age 76
least $100,000. Results
The insured (Key Man) had to retire due to
illness. The agent assisted the insured in
BENEFITS converting the term. A settlement provider
Both the policy owner and their advisors simultaneously settled the new UL policy for over
$1,000,000. The premium on the conversion was
benefit from a life settlement. Policy owners over $480,000.
benefit from being able to “unlock” cash for the purpose of:

Improving their current insurance program by using the settlement proceeds as a

“dump-in” to purchase new life insurance.
Improving their financial situation when an unwanted policy is too expensive to
maintain.
Providing cash for a policy that has either outlived the intended purpose or is no
longer wanted.
Providing businesses with a financial “windfall” from a policy that is no longer
needed, e.g. life settling terminated buy-sell agreements and “key-person” policies
on departing executives.
Rescuing a failing policy within a pension plan.
Unwinding a life insurance sale after either a change—or updated legal
interpretation—of the prevailing tax law.

Financial professionals reap many benefits including:

Additional income potential by facilitating the sale of a policy to a third party

institution.
Additional income potential by recommending the purchase of additional life
insurance made possible by funds from the sale of the original policy.
Continued receipt of renewal commissions on a policy that may otherwise have
lapsed.
Providing a valuable service allowing clients to receive substantial more funds than
by surrendering a policy.
Meeting fiduciary requirements under both ERISA and their statutory law of trusts.

TRANSACTION PROCESS

The transaction process begins with the completion of a Quick Qualifier to determine
settlement probability, followed by the Life Settlement Preliminary Inquiry and a HIPPA
Authorization forms. In-force illustrations are then obtained, medical records of the insured
are received and a formal “Life Expectancy” (mortality) reports are acquired. Provada then
negotiates the highest offer by utilizing its relationships with over 30 qualified institutional
funding sources.

Once an offer is accepted, Provada assists with the closing documents, change of ownership
and change of beneficiary forms. Upon verification that change forms are being processed,
funds are released to the policy holder by the funders.

Divorce
$1,000,000 face UL
Policy
$60,000 cash value
$40,000 premium
Male age 75
Results
Insurance is no longer needed
per divorce decree (ex-spouse
remarried). The client used
over $220,000 of settlement
proceeds for personal needs.
CASE STUDIES
Buy-Sell Ended
Two $2,000,000 face UL
policies
Approx. $200,000+ cash
value in each policy
Male age 75, and Male age
73
Results
The business sold and buy-sell was
no longer needed. The 75 year old,
with a preferred rating, kept his
policy (and changed beneficiary)
because the settlement offer was too
low. The 73 year old, in poorer
health, settled his policy and used
the proceeds as a "dump-in" for a
new policy owned by an ILIT.
Estate Rescue
$10,000,000 former estate value
$6,000,000 current estate value
$5,000,000 original ILIT
coverage
$2,000,000 current need
$480,000 cash value
Results
The ILIT trustee sold the policy for
$1,300,000 and had the option to use
proceeds to purchase a fully paid-up
policy, or purchase an annuity to pay
the premiums. The out of pocket
premium cost is now eliminated.
 THE PROVADA ADVANTAGE

Our experience has shown that 40 percent of all life settlements result in a new insurance
sales. Provada’s expertise in both life insurance and life settlements ensures agents and
advisors the best possible outcome for their clients’ needs. Provada principals include
Chartered Life Underwriters, Chartered Financial Analysts, and Certified Financial Planners.
Our clients want to know the best solutions to their challenges. They benefit by having
access to senor executives with life settlement, insurance, financial planning and financial
expertise.

Provada works with agents and advisors to deliver an integrated life insurance and life
settlement underwriting process for their clients. We are here to support financial
professionals in all aspects of business development—from client seminars and meetings, to
preparing detailed illustrations and presentations, to facilitating the insurance and financial
underwriting process.

SUMMARY

Life Settlements are an excellent alternative for clients who have found their policy is no
longer meeting their original expectations. Financial advisors find that partnering with CPS
Settlements provides them with nationally regarded expertise in life insurance and life
settlements. This partnership produces optimal strategies and solutions for their clients.

THE LIFE SETTLEMENT PROCESS

This material is for informational purposes only. Although many of the topics presented may also involve tax, legal,
accounting, or other issues, neither Provada, nor any of its agents, and employees are in the business of offering
such advice. Individuals interested in these topics should consult with their own professional advisors to examine
tax, legal, accounting, or financial planning aspects of these topics
1 1
“Life Settlements, Additional Pressure on Life Profits,” Conning Research & Consulting, Inc., 2003.