Private Client Case Studies

Life Settlements For the Benefit of a Cherished Charity

Issue: Wealthy individuals have a long and proud history of utilizing life insurance to benefit their favorite charity(s) – through naming a charity as the benefactor. However, the insured has typically been responsible for the life insurance premiums, and the charity only receives a cash benefit upon the insureds death.

Solution: RCP has developed a technique in which an individual can donate their excess insurability to benefit a charity of their choice, whereby the charity receives an upfront cash settlement for the donated insurability. The beauty of the program is that it takes an unused asset (donated insurability comes from a high net worth individual who does not need further life insurance) and monetizes it for the benefit of a cherished charity. Furthermore the donor will actually see how his donation will benefit others while he or she is still alive.

This program has already been used by 15 non-profits and raised over 20 million dollars. Best of the entire donation was cashless from the donor’s point of view.


Monetizing Excess Insurability to Double Net Worth

Issue: As they exist today, settlement related transactions are quite limiting – qualifying only a handful of high net worth clients who apply. Approved clients must be elderly - age 75 or higher; must have some health impairment; and must have a predictable life expectancy of less than 10 years - offering investors a reasonable time-line for repayment and an ability to accurately calculate returns. As a result, only a few qualified candidates are able to convert insurability into a cash payment, dismissing life settlements to only a niche solution, not applicable to high net worth individuals at large.

Solution: RCP’s recently developed, cutting edge risk transfer instruments are now being integrated into life settlement transactions – and the results are powerful. RCP has created a new class of settlement transactions that permit a broader class of clientele to participate. Specifically younger, healthier candidates can now monetize their Insurability asset well before the age of 75.

These new innovations are the result of uniquely structured securitizations, a lower cost of capital due to risk finance, multiple trades throughout the transactional period, and by leveraging the arbitrage that exist between participating financial and insurance markets.

Ideal candidates for these next generation life insurance transactions must still meet the net worth and income requirements, as these transactions remain applicable exclusively for high net worth individuals. The minimum financial qualifications are a net worth of $5 million or an annual income in excess of $1 million. Additionally, a one time medical examination is usually required by the life insurance companies, as in any life insurance issuance. As these new programs generate higher financial rewards given time, ideal clients should also be comfortable with a three to ten year transactional timeline in order to maximize returns.

By managing insurability over a period of years, cash payments received by the insured at periodic points in the process can be used as income, or reinvested into other life insurance vehicles to further leverage returns. At the end of the process, a client can simply cash in all outstanding insurability assets and receive a lump-sum payment. Ultimately these strategies deliver significant cash to the insured while still alive, transforming an otherwise passive asset, into an active asset that will significantly increase present net worth.


Private Placement Life Insurance

Issue: Whilst life insurance policies, both whole life and universal, have been used by millions of people for cash build-up due to the attractive rates of return, new investment opportunities exist that enable even further policy cash build-up and let the underlying insured have greater control over investment decisions.

Solution: Private Placement Life Insurance (“PPLI”) is a variable universal life insurance product designed for high net worth investors. It is offered by both domestic and foreign insurance companies and provides policy holders with sophisticated asset management choices, including a wide variety of hedge funds and hedge funds of funds.

Generally, the core motivation for acquiring a PPLI product is to establish a tax-free investment environment, at the lowest possible cost, in which an investor may designate hedge fund or traditional money manager(s) to manage the assets paid into the insurance policy. The death benefit component of the policy usually is considered a secondary benefit.

Although most investors are drawn to PPLI for its tax benefits, investment flexibility, and price structure, few regard the life insurance benefit as an important feature. However, the life insurance component of the product is critical and there are many technical insurance issues to address in the process of acquiring a PPLI product. Accordingly, RCP’s extensive life insurance experience coupled with our investment banking and capital markets expertise provides a unique and valuable service to potential PPLI clients seeking to maximize the benefits of this very unique investment vehicle.


No Cost Life Insurance

Issue: Due to the current low interest rate environment, an arbitrage exists between the historically high performance of life insurance policies and bank lending rates.

Solution: Instead of paying cash to fund a life insurance policy, RCP’s banking partner lends funds to pay life premiums. The bank is later repaid from the death benefit. This allows the purchaser to acquire an insurance policy without having to put up any cash. The lender will not receive any payments from the insured until death. At that time, the lender is repaid both the principal loan amount (equal to the cumulative total of all the premiums borrowed), and the accumulated interest from the insurance proceeds of the life insurance when the insured dies. The insurance proceeds in excess of the loan and interest repayment is paid to the insurance policy’s beneficiary.

RCP’s premium financing is most effective when it utilizes the equity in hard assets that are otherwise not creating wealth. An example is equity in property: Equity in property does not create wealth because the property will appreciate at the same rate whether or not it is paid for. Thus, the equity in property is unused for investment purposes. Equity in property is also, in most states, available to creditors. By using the equity in the property as collateral for the bank’s loan to fund the premium payment, the equity of the property is effectively stripped out until the bank releases the property when the death benefit pays off. If a creditor appears, the creditor will be behind the bank’s lien, and will have to wait for somebody to die to before getting at the equity.