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Group Life Insurance


Guest blackacre
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Guest blackacre

An employer provides $40,000 of life insurance coverage on each employee. An employee who says she has no possible beneficiaries and is disabled asks if there is any way she can access this benefit while she is alive. Is that possible with a group policy? Are there any alternatives?

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Many plans have a "living benefit", but you must be diagnosed as terminally ill to access it. Our plan will pay up to 50%. Check with your broker. But unless the employee's disability is also terminal in the short run, this will not help her. Hopefully she has designated her favorite church or charity as her beneficiary.

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I'm not sure, but I don't see any reason why a viatical settlement company wouldn't be able to step in here. Assuming there's nothing prohibiting your employee from naming the viatical settlor as a beneficiary, they may be willing to "purchase" such a designation with a discounted up-front payment.

Like I said, I'm not sure. Viatical settlors may be hesitant to accept business regarding a group health plan because of the potential for the insured to leave the group.

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Steve72 probably meant a "Life Settlement" company. Terminal illness is not required etc.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest blackacre

Yes, I thought of that possibility -- life settlement -- but thought that the possibility that either the employee would leave the group or the benefit might not be offered until her death would argue against that. There is not the control of paying the premiums and controlling the beneficiary that one has in the single policy situation. Perhaps the best thing is to call a settlement company and see what they say. Thanks very much for your help.

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Ask the settlement company and shop around.

If you think about it a group term life plan usually has a conversion or continuation and a non-forfeiture option. The settlement company can calculate the reserve needed to convert the policy in case or termination of employment and they cna find out what the conversion premiums are or non-forfeiture values such as paid-up face amount will be. From this they can make their calculations and come up with a purchase price. Whether or not the end result is attractive is determined case by case.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Has anyone thought this through. First how does the employee assign their interest in the group policy (which probably consists only of the death benefit) to a thrid party. Second Group ins is cancelled when the individual leaves unless the employee elects to take out an indiviudal policy and pay for it out of pocket. Third who will be willing to take a risk and purchase the rights to the proceeds unless they have some idea of when the emplyee will die. Viatical settlements are predicated on the probability that the insured will die within a time certain because of a terminal illness such as cancer or aids. The purchaser buys the policy based upon the present value of the proceeds at the end of the insureds life expectancy. e.g., 2 year life expectancy at 6% discount rate on $40,000 would have a present value of 35,600. The purchaser would pay 35,000 and gamble that the insured will die in 2 years. If the insured dies sooner the purchaer wins. If the insured lives more than 2 years the purchaser loses. How does this work in a group policy? If there are buyers for this arrangement I have I bridge for sale.

mjb

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Here is some introductory material, a Google search will give you more.

http://info.insure.com/life/lifesettlements.html

Re "who takes the risk?" see the above re private investors and see the next link regarding corporations.

It is not much different in principle to the COLI policies on employee (and ex-employee) lives, the only difference is that one is financed by private investors and the other by the employer (or ex employer):

http://www.benefitnews.com/detail.cfm?id=4415

By the way, the death benefit in a group term policy is assigned in the same manner as done for all other life insurance ... the insured or policy owner signs a beneficiary designation form.

There are lots of buyers and the first such purchase that I saw was in 1967.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GB: If you read the materials that you posted you would have noticed that the articles discussed individual LI policies which can be assigned under the laws of every state. Second, the purchaser assumes the payment of the premiums to prevent the lapse of the policy. Since an employer can cancel a group policy at any time there is no similar guarantee against lapse that is available for the purchaser of a group policy or would require that the purchaser pay for the cost of an equivalent whole life policy. (You obviously failed to read Blackacre's post). Also as noted in one article the face amount must be at least 250k. Finally no intelligent purchaser will buy an employee's right to proceeds in a group policy without an opinion of counsel that the employee can assign the rights to proceeds under the policy and state law. Signing a beneficary designation form is not enough- The employee must properly assign all incidents of ownership to the purchaser in order to transfer all rights and avoid the estate taxation on the insured. The purchaser will have to pay for the review.

mjb

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It does not matter whether group or individual, life settlement still is applicable. That is the choice of the investors not yours. The minmum size that is acceptable varies with the investor, not everyone has the same minimums (not very different from other investments).

As to the ability to assign, that depends on the actual policy, but most plans such as what was mentioned by Blackacre are assignable and owned by the employee.

Blackacre,.. Will you please clarify?

An individual purchaser can cancel an individual plan even faster than an employer and neither ahve any guarantee against lapse other than as provided in the non-forfeiture provisions of that particular policy.

Your reference to state law regarding the beneficiary change has no validity.

The conditions that a purchaser of any policy has to satisfy is a factor that the purchaser takes into consideration whether it be viatical or life settlement. What a purchaser of anything will accept is up to that purchaser and their own risk tolerance etc not yours.

What and how anyone chooses to invest is up to them not you.

Just because you do not understand or know much about an item or product has no bearing on the validity of that item or product. There is much that you do not know and it is unfortunate that you do not know when you do not know and know how to act or speak accordingly

.

I suggest that you find out much more about life insurance policies.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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The purchaser of an individual policy in a viatical settlement receives all of the rights of ownership as a condition to making payment to the insured including the right to make all premium payments. No investor would purchase the policy and pay premiums if there was risk that the proceeds would not be paid. The purchaser assumes the investment risk that the insured may live longer than expected which will reduce the rate of return on the amount paid to the insured and require the payment of additional premiums by the purchaser.

Persons who purchase viatical settlements are risk adverse. They purchase syndicted interests in the policies as no risk investments for their IRAs since the insured will die and the proceeds will be paid. I have never seen a proposal for viatical settlement in which the purchaser would assume the risk that the policy would lapse.

mjb

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We are a large employer (100,000 + employees nationwide) and have had many viatical assignments on our group life coverage. The viatical settlement companies typically request we complete a questionnaire which contains questions regarding continuation of coverage due to disability, waiver of premium, conversion, amounts, suicide clauses, beneficiaries, etc. If there is a true waiver of premium in place on the policy or if the waiver is self insured where the company continues the premium once the employee qualifies as disabled, buying the policy becomes very attractive - no premiums for the viatical company to pay and an almost guarantee of coverage continuing. Also, the payout to the insured has generally been in the 30-60% of face value range. Typically ownership is transferred by executing an absolute assignment, not a bene designation.

We also have a living benefit provision in our plans, but it requires the expected lifespan be under 12 months. It appears that the viatical settlement companies aren't so picky.

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This is interesting. Are there minimum amounts of insurance coverage that the co wants to see or maximum life expectancies?. I know life settlement brokers will purchase term ins of insureds who are age 60 or have life expectancies of 10-12 yrs.

mjb

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