Non Profit MIGI Presentation
A New Charitable Donor Strategy
Presented by: Gary Elkins CPA
Kingsport Financial Network, LLC
425 Huehl Road
Northbrook, Illinois 60062
Current Market Trends
• Senior settlements are on the rise, increasing
from $15 billion in 2006 to an estimated $30
billion in 2007, and will soon be a $160 billion
• Life insurance on seniors is on it’s way to
becoming securitized and offered in pieces by
Wall Street Bankers as investments for their
clients. Players include Credit Suisse, Deutche
Bank, and Berkshire Hathaway (Warren Buffet).
See New York Times Article given to you at the
*From Business Week July 30, 2007
Why Life Insurance?
• Life insurance held by seniors has been a
valuable profit center for life insurance
industry. Premium amounts are projected
expecting the insured to hold onto the
insurance for life. In fact, most seniors allow
these policies to lapse (in 2005. 19.8 million
policyholders stopped paying premiums) since
they have served their purpose of protection
for personal and business purposes.
• The life settlement market has been around
since the late 1990’s and has retrieved this
profit for the benefit of investors.
Why Life Insurance? pg. 2
• Prior to the rise of Life Settlements, (defined
as the sale of an insurance policy by the
owner prior to the insured having a
catastrophic or life threatening illness or
condition), insurance companies have been
able to keep the collected premiums on these
lapsed policies without any death payout. (In
2005, insurers paid death benefits to only 2.2
million people out of 21 million total policies
either surrendered or death claims paid out.)
*from The New York Times 12/17/2006
A Study of Life Expectancy
• Insurance companies have done life
expectancy studies to ensure that their
premium pricing is correct for their policy
• Historically, hey have been able to under-
price the senior insurance market because
they know that the overwhelming majority of
issued policies will be surrendered before the
policy owner passes away.
• The results of their study is as follows:
A Study of Life Expectancy (2)
1. Sixty-three percent (63%) of the cases
terminated on or before the Life Expectancy
(LE) Certificate date.
2. Eighty-eight percent (88%) of the cases
terminated by the end of the first year
following the life Expectancy (LE) Certificate
date. (At LE +1 year)
3. Ninety-seven percent (97%) of the cases
were terminated by the end of the second
year following the Life Expectancy
Certificate date (LE+2 years)
From Healthcare Benefits Ltd. 1/25/2005
Why Wall Street wants these
Wall Street has computed the life expectancy
against the premiums charged on the policies
of seniors and have determined that they can
arbitrage premiums paid out against the
death benefit. Effectively, Wall Street can
purchase a policy in in excess of it’s cash
value, return a handsome amount of money
to the insured, and still provide enough
cushion to monetize these policies into bonds
resulting in a nice return to the public.
What can a Not-For-Profit do
to raise endowment money via
• Contact donors and alumnae, ages 65 to 85 who are
worth $2 million or more to take out a life Insurance policy
based on their excess insurance capacity.(net worth less
any insurance in force)
• This insurance should be placed in a irrevocable life
insurance trust so that estate taxes are not increased in
the event of death.
• These policies can be financed with no out of pocket cost
(those rated Standard or better)
• A few select companies offer programs where the insured
will not be liable to pay the premium back.
• If in 2 years, the policies are sold or by that time the
insured has died, the trust receives the benefits.
Recent Case Studies
Case Studies (2)
Case Studies (3)
Case Studies (4)
How Much can we make????
• If an organization can provide 10 donors
between the ages of 72 and 85 who are
insurable and can qualify for a $2.5mm
policy, we would expect that in two
years we could sell those 10 policies for
a net profit of $2.5 million. This could
be done as a charitable contribution
upon the sale of the policies.
Tax Advantage for Donors
Assume that a donor takes out a $10
million dollar policy, and received $1
million dollars at the end of two years.
If the donor makes a donation of this
money he will receive a tax credit and
still be able to leave $ 1 million to the
charity of their choice
• Under current law, all proceeds from the sale
of the life insurance policies are long term
• If a donor makes $100,000 as a result of
selling a policy, the tax would be 15% or
• Once the donor gives the proceeds to charity,
it is treated as an charitable contribution and
will results in a $35,000 tax reduction and a
$20,000 tax credit that can be used against
his other income, or to be carried forward.
Legislation regarding Life settlements, especially
newer legislation, has been designed to protect a
consumer’s right to sell their insurance policy.
Some states (esp. Maine, Oregon, and
Washington) have language that require life
insurers to let seniors know that they have a life
settlement option. Life settlements are viewed as
a consumer friendly transaction. It allows a
senior to maximize the value of their asset in the
The Advantages of
• Donated policies can generate cash to relieve
future obligations or generate cash for new
• By using Charitable Owned Life Insurance,
additional tax benefits are available to the
• Qualifying organizations may use their tax-
exempt status to establish long term income.
Past Donated Policies
Charitable Organizations that already own donated life
insurance policies may, with the donor’s consent,
pursue a life settlement option on them also. This
will benefit them in many ways:
• Provide instant cash.
• Alternative to carrying poor performing policies.
• Eliminate premiums and annual reviews.
• Prevent spending down assets that are linked to
• Satisfying a donor’s desire to see the policy benefit
put into use while they are still alive.
Step 1: The Initial Review
• Determine if the client tentatively
qualifies for the program bases on
financial and health guidelines.
• Have the client sign an authorization so
we can retrieve his medical file.
• Have the participating insurance
carriers review his health history for a
Standard or better issue.
Step 2: Start The Process
• Upon informal acceptance from the
participating insurance carrier, the
applicable insurance application is
completed by the client.
• All formal medical requirements are
ordered and completed.
• The client’s medical file is sent out to
obtain Life Expectancy reports (LE’s).
Step 3: Approvals
• Once the client receives a formal
medical approval, the product
illustration, two LE’s, and a premium
financing application is submitted to an
approved funder for acceptance.
• Upon approval, the insurance policy is
issued and the premium financing
contracts are executed.
Step 4: Completion
• The premium financing approval will be
followed by a ‘closing’ where all the
pertinent paperwork will be executed.
• 2 days after the ‘closing’, the premium
finance institution will distribute the first
annual premium, along with fees and
interest, to the insurance carrier. The
insurance will then be ‘in-force’ !
Please feel free to contact us
Kingsport Financial Network, LLC
425 Huehl Road, Suite 6B
Northbrook, IL. 60062
Contact: Gary Elkins, CPA