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									Non Profit MIGI Presentation

 A New Charitable Donor Strategy

   Presented by:   Gary Elkins CPA

   Kingsport Financial Network, LLC
   425 Huehl Road
   Suite 6B
   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
  dollar market.
• 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
         life insurance?
• 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
           Tax implications
• Under current law, all proceeds from the sale
  of the life insurance policies are long term
  capital gains.
• 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
open market.
         The Advantages of
          Life Settlements
• 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
  donor base.
• 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
  long-term investment.
• 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
       with questions!!!

Kingsport Financial Network, LLC
425 Huehl Road, Suite 6B
Northbrook, IL. 60062
Contact: Gary Elkins, CPA
847-226-3579 cell

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