020 | The $250 Billion Question: Abacus Life’s Solution to Your Problem Life Insurance Policy

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[00:00:00] Patrick: Welcome to the Vital Strategies podcast, your go to resource for expert insights in the ever evolving world of tax finance and wealth building. Today on the podcast, we are talking about how life insurance can be an asset to you, but probably not in the way you think we’re going to discuss how to exit your life insurance policy with Kolby Skolnick from Abacus life.

[00:00:31] Patrick: I’m your host, Patrick Lonergan, and I’m thrilled to share today’s conversation with you. Let’s dive in Kolby. I really appreciate you joining us today. I’m excited to get into the discussion about abacus life, a publicly traded company on the NASDAQ. We think that’s cool. Vertically integrated alternative asset manager. Now I know that’s a pretty broad category, but Thank you for joining us. Can you just get into a little bit about the type of work that Abacus does?

[00:01:02] Kolby: Yeah, absolutely. Patrick. I appreciate it. Thank you for having us. What we have done essentially is a case study over the years involving CPAs, financial professionals, older insureds, kids of the older insureds help understand how much of them actually believe their life insurance policy, their life insurance asset.

[00:01:23] Kolby: Is in fact an asset and the findings were pretty astonishing, Patrick. Actually, we only found that less than 1 percent of those individuals believe that life insurance is an asset. And with that, most of them just think, okay, it’s a future benefit. My heirs will be receiving this death benefit. These proceeds upon the maturity of the contract and they look at it as a liability.

[00:01:44] Kolby: An expense. And in fact, these assets actually carry capital, depending upon where they’re at and in their maturity and when it was issued, they could be an oftentimes the most valuable asset these these individuals own more more valuable than their real estate that they own. So, in a secondary market, we purchase these assets, and we’re going to discuss some client situations where it would be best suited for them to pursue the transaction.

[00:02:08] Patrick: That’s great. Cause when I think about how abacus comes into play, I, when we stop and think about what life insurance does, right? Like it can protect families, businesses from an untimely death. It can also be a liquidity tool that, you know, when structured properly, people can use for pulling dollars out of two could be retirement income could be.

[00:02:29] Patrick: You know, short term cash needs that type of thing, but there’s also scenarios where life insurance has quite a bit of structure to it, where it may not fit the needs that I originally intended it for. And so now I’m, I’m looking to make a change and I think that’s where Abacus comes into play. And so I’m excited to get into.

[00:02:46] Patrick: The different opportunities that we can just talk through today on how you get involved. And if somebody is like, okay, this life insurance served its purpose. I don’t see it as an asset anymore. I’d like to turn it into an asset and how you can do that. Cause I think most people think, well, I don’t want this policy anymore.

[00:03:02] Patrick: I’m just going to surrender for the cash value. Can you talk a little bit about why? We should get Abacus involved in the discussion before I just go cash it in.

[00:03:14] Kolby: I can think of roughly five, six situations where this can be an insured avenue path for them to pursue. But really, I’d like to take it a step back.

[00:03:22] Kolby: Insurance has been a possibility in America for us for hundreds of years now. Most people don’t know about this asset class. Seven in ten Americans actually believe that you just lapsed your policy if there’s nothing you can do for if it’s too expensive. They’re on fixed income. Maybe it’s a situation where it’s underperformed or overly performing.

[00:03:42] Kolby: We all have plans set in place for these clients to pay and fund these portfolios properly. And sometimes they don’t always do. Life happens. We understand that. But it actually goes back to 1911. There was a Supreme Court case when there was an insured who had medical bills that they need to pay, and the Supreme Court ruled that life insurance is actually private property.

[00:04:04] Kolby: And by definition is therefore an asset that can be bought, sold, or traded in a secondary marketplace. And that’s exactly what Abacus does, and this, This asset class, this, this marketplace didn’t really solidify until around the nineties when there was an uptick in a lot of insured getting impairments from cancers.

[00:04:23] Kolby: There’s a lot of different variations of cancers. Um, there was the AIDS epidemic going on during that point in time in this country, and a lot of people were trying to keep up with the uptick in medical expenses. So they were rapidly selling off their assets, trying to get liquified to essentially pay these bills to stay alive with that.

[00:04:41] Kolby: Investor saw opportunity. So, of course, institutional funds follow the money. They all flooded the marketplace. And that’s where you started to see companies like abacus, other brokers, other direct provider third coming into play here in the early 2000s. But medical bills definitely answer your question.

[00:04:58] Kolby: Patrick is, I’d say, one of the more common situations. I see people refer to it as a by article option. But with money entering the marketplace, increasing awareness, increasing the technology, the longevity data that we had available to us, we were able to qualify more of these cases. So it wasn’t just a biotical option anymore, but now it’s a intricate tool that you as the advisor or As your regular client, you’re, you know, tax paying us citizen can have a second option on what they can do in their life insurance policy.

[00:05:29] Kolby: So advocates was actually founded in 2004 originally, but there’s plenty of strategies. I listened to your last podcast, actually, Patrick with Derek, with business exit strategies. That’s another great example. It may be a key man policy. Maybe there’s a partner that’s upset or some sort. Of situation going on where this avenue could be feasible for them.

[00:05:50] Patrick: Sure. We talked a little bit about scenarios where medical bills, that type of thing, start showing up and. I assume Abacus has found an opportunity to come into the marketplace and go, all right, cool. Your cash value is X number of dollars. We can actually pay you more than that too. Otherwise nobody would engage with you, right?
[00:06:11] Patrick: Like nobody would participate in, in, in selling their policy if it didn’t create more value than what they could get out of it otherwise. So I think with that in mind, like, can you walk through some scenarios where this is just like an absolutely great fit for people to. Start considering that, or maybe outside, uh, the got some medical bills to pay, like.

[00:06:32] Patrick: Did you just talk through that a little bit?
[00:06:34] Kolby: Yeah, I actually have a case study. It was a case that came across my desk quarter three, quarter four of last year. It was very streamlined, very easy for the most part. This, this gentleman we’ll call him Jim. Jim was in the Southeast and Jim and his son, they were both business owners.

[00:06:50] Kolby: They were partners in their own firm. Jim is an 82 year old business owner. He received. Was active for a very long time. As you’d imagine, I always say, never stop an active man. Essentially he wanted to throw in the towel. He wanted to go ahead and release this money from his key man policy. And he was essentially seeking liquidity.

[00:07:10] Kolby: It was a strain on his cashflow. It was forcing him to seek this option. It was a universal life policy. That was just point in point. It was getting pricey for the corporation to pay those premiums. Talking more of the X’s and O’s roughly 8 percent premiums to the face value. These were two policies totaling 2.

[00:07:28] Kolby: 5 million and worth and 8 percent premiums. This gives you an idea of what they’re paying on an annual basis. I took it a step further with them and I explained to them that they were in year 18 of this contract. And if this insured. Was to live another six years, they’d actually be paying a cumulative premiums larger than the death benefit.

[00:07:47] Kolby: So, they didn’t even know that their basis was that high. They were pretty astounded by that. So, not a tax professional, but we were able to grant them 530, over 530 dollars in a life settlement. It priced well over their cash surrender value more in most cases, we actually pay Patrick six to eight times over the cash surrender value for these life insurance policies, which creates a lot more additional value for these clients and just from a liquidity standpoint, um, they were, they, they were able to get out from underneath those premiums.

[00:08:17] Kolby: They had to pay.
[00:08:18] Patrick: Can you go back and what was the number again that you, you were able to get them for that policy? How much was that?

[00:08:23] Kolby: It was two key man policies totaling 2. 5 million. We were able to give them 532. Exactly. It was two 66. If you want to do that, Matt, a roughly 266, 000 for each policy.
[00:08:37] Patrick: Okay.

[00:08:37] Patrick: So I wanted to just clarify, you gave them about a half million dollars of cash for these, these two and a half million dollar policies that my quick math says they were paying about. 40 grand a year on is that, uh, it sounds like they’re premiums. And they were like, okay, if I can turn this into real dollars today, that it don’t have to keep putting out more and more money, and maybe I’m off on my 8 percent on the, uh, Uh, the two and a half million, but, um, the fact that they can turn it from an expense to over a half million dollars of money in the bank is, uh, that can make a lot of sense for people, the right opportunity.

[00:09:12] Patrick: So that’s fantastic. So I think this is a useful piece of this discussion as well. Like how does Abacus make money in this thing? Right. Like, I think understanding that piece is something that’s important. Because like, when I hear that, You’re paying half a million dollars for a policy that’s dying, that’s costing a lot of money, like That, that can sound a little too good to be true.

[00:09:35] Patrick: So if I understand your side of the equation, I think that can help people go, Oh, okay, cool. I see how this is a win win for everybody.

[00:09:42] Kolby: Absolutely. And I digress back to when we started in the early two thousands, this industry was kind of a black box transaction, uh, not a lot of insured, not a lot of policyholders, not a lot of advisors even knew the kind of value they were getting in these transactions.

[00:09:56] Kolby: They didn’t know if they were getting. Any low ball offerings is what, what’s the net present value was. Obviously the market will dictate the fair market value, but there was a lot of questions to be had. So what advocates did in 04 was we originally were founded by our three partners and we didn’t want to operate as a broker anymore.

[00:10:14] Kolby: We, we were once founded as a broker, a small brokered shop, and we wanted to expand and be a direct provider. What that means being a direct provider, Patrick is essentially How we make our money. We’re interested in the death benefit. That is how we make our internal rate of return. That’s. It’s mortality based our pricing model.

[00:10:33] Kolby: So we do look at those rate of returns and we project that in our model, and we get paid that way but also we have roughly 20 institutional funds capital funds previously just to name one that we’ve worked with before is KKRS. That’s a pretty big household name that most people have heard before but what we do with them is we have it.

[00:10:52] Kolby: Preset originated fees set with these funds these partners so we get paid through those fees from these institutional partners of ours that are preset and they’re not taken out of any gross offerings what advocates does is it’s mortality based pricing like I just mentioned, we do our three steps we do our pre pricing, we go out and get the underwriting all full service we do it all no cost to the advisor no cost your client.

[00:11:16] Kolby: All we ask for is your time and your effort to give us the patience to work the case. And what that looks like is, we give the gross offer to the advisor. If there is an advisor representing the client in this case, I explain to them with each state, there are different disclosure laws, so I advise the advisor in that capacity.

[00:11:33] Kolby: And the gross offer, That’s where the agent would take their compensation, wherever they see fit. It’s typical to a real estate compensation, if you’re familiar with those parameters. Lastly, the net from that is going directly to the client. Got

[00:11:45] Patrick: it. A few things, we like the fact that our pricing model is like fee based, we’re upfront, people see all the, Dollars they’re paying us.

[00:11:56] Patrick: And so is it a problem as advisors? If we just pass, what would have been our fee straight through to the client?
[00:12:02] Kolby: Oftentimes I get a lot of pushback for this answer, but it’s, it’s a case by case situation. The rule of thumb for advisors is 30 percent of the gross offer or 8 percent of the face value. The lesser of the two is what the advisor or agent on the case who is brokering the cut, the deal.

[00:12:19] Kolby: That is what they’re responsible to get. That’s what they are able to get. So they, the next question typically Patrick is Kolby. What’s the average each case? What’s the average? And I always say, of course, depending upon the relationship that you have with that client, you may have done a lot of work with them over the years with your fee based planning.

[00:12:35] Kolby: So typically, though, 10 percent 10 to 15 percent of the gross offerings is what agents typically get in this transaction. And then from there, of course, whatever’s left over is the net that would go to the client again.

[00:12:47] Patrick: Great. Thank you. And so just to go back and talk through a few things. So we were talking about mortality, right?

[00:12:52] Patrick: Mortality is a fancy word for how long somebody is going to live. And, uh, you’re doing the. We’ll call it the math on life expectancy for everybody. Now we know some people are going to live shorter than that. Some people are going to live longer, but it’s just a, it’s really just a numbers game. The law of large numbers says it’s all going to average out just right.

[00:13:11] Patrick: And when you’ve got enough good data. It helps you, you know, make wise decisions, make offers, and then, uh, the client can decide to take those or not. So, in that process, is there effectively an underwriting that, that takes place on the, the client to understand where they’re at from a, a health perspective so you can make an intelligent decision there?

[00:13:31] Kolby: The entire process in a nutshell, Patrick, like I mentioned, three steps. And what we’re discussing right now, the underwriting is step two. What we do is, of course, we gotta abide by HIPAA laws. We’re not only state by state regulated, we’re under scrutiny federally from the IRS, the SEC, like you mentioned before, we’re publicly traded on the NASDAQ.

[00:13:48] Kolby: So we got to make sure we’re, we’re crossing our T’s, dotting our I’s, um, in our due diligence. So what we do is, all we ask for is the client, um, who’s interested to sign a HIPAA form. We go out and the doctors that they give us, we get, um, Full APS is or medical records of the last five years for any doctors or facilities that are necessary that could possibly bring a debit to their mortality.

[00:14:10] Kolby: And yes, it is a morbid conversation. Patrick. I have previously worked with clients, less affluent that are not represented by advisors. So. Very comfortable with having those morbid conversations with family members, and it’s tough, but the fact of the matter is, is that mortality is inevitable. We don’t know.

[00:14:29] Kolby: All we’re doing here is having a conversation about probability. This is in God’s hands, we don’t know, but what I do know and what I can control is that this policy, when it was issued, Your life and the pricing and the premiums, the contracted premiums are directly correlated to the value and what that net present value could represent.

[00:14:48] Kolby: So that’s what we try and figure out. We, all we need is an in force illustration for us to get our hands on it, optimize the premium stream. We then move to underwriting to see if those impairments are aligned with our pricing model essentially.

[00:15:02] Patrick: Thank you. I appreciate the clarity there. So another thing that we’re looking at is, so we’re thinking about the owner of the policy, but then there’s also the insurance company.

[00:15:13] Patrick: I know a little bit of this answer, but our insurance companies, like, I’m just going to just say it. You guys do a great job. Insurance companies like working with you. They have actually sold off some blocks of business to Abacus, but are there insurance companies out there that don’t like this type of transaction?

[00:15:29] Kolby: Yeah. I mean, it’s definitely a tricky conversation when you start talking about our comparisons with carriers. Um, but insurance providers, we try and. emulate to a certain degree. You go to them and they have all those, they have the downstream, they have the producers, they have all the products out there in line for everyone to have full utilization of and, and that’s what we kind of wanted to format.

[00:15:50] Kolby: We wanted to be a full back office to life settlements, but of course from opportunities from the IPO, it raised awareness, it lowered our cost of capital in order for us to buy more policies to Qualify more policies to keep the lights on. Of course, that’s what we’re in business for. But it’s really interesting when we started to do this, we from the IPO, we noticed that there was some opportunities from some carriers that were interested in collapsing some of their policies.

[00:16:18] Kolby: There were older policies with some carriers that they weren’t written properly. They weren’t priced properly. And this particular carrier I’m thinking about right now that we work with and have an agreement with, with one of our institutional fund managers is they noticed that We have purchased in the last year, year and a half could be a little bit, what, maybe closer to two years, but we purchased about 1 billion in total face value.

[00:16:43] Kolby: for that carrier. And they noticed that and they were trying to see what we saw. They saw that we obviously had an opportunity on our hands and and they were missing something. Long story short, these policies were not priced properly. And since the carrier Wanted to stop this and not pay those death claims to a company like advocates or to a policy holder that hasn’t yet seen this option.

[00:17:09] Kolby: They decided to partner with our funds and what they’re doing is they’re buying back these policies through our fund and they’re collapsing it internally, essentially trying to stop the bleeding.

[00:17:21] Patrick: I can see where life insurance companies don’t like the work that you do, because if a policy gets surrendered, like they go, okay, fine, we’re, we’re just paying out, we, we know what the.

[00:17:33] Patrick: The payout is right. It’s the cash value in the policy. We don’t have the death benefit. I’ll call it liability down the road where advocates gets involved. They go, Oh, Hey, we’re we’re a sharp group of people. We’re going to put the math together. We’re going to get the client more money than they would have received from surrender value.

[00:17:49] Patrick: And then we’re going to execute on this policy until it pays out a death claim. And, uh, Yeah, the carriers can be like, wait a minute, we didn’t have this built into our pricing model. And, uh, so I could see why that might frustrate people, but in general, the cool thing about a life insurance policy is I own it just like I do any other asset, and if I decide I want to.

[00:18:11] Patrick: Change the ownership of that asset from myself to my kids or abacus, I’m, I’m free to do that. So that’s fantastic. I appreciate the opportunity you bring to the marketplace. It just gives people new flexibility that they, they didn’t have before. So you touched base a little bit on the investment strategies that.

[00:18:31] Patrick: Are available through Abacus. So, you know, on one hand you’re buying the policies and then on the other hand, you were talking about cost capital. It sounds like you’re raising some money to help be able to continue to fund these and there needs to be a payout to the investors. And so can you just walk through maybe high level, I don’t want to get into.

[00:18:54] Patrick: I want to stay away from as much detail as we need to, to, to make sure that we’re compliant from an SEC perspective, they can look as closely as we want. I just like to abide by the rules. So I want to be mindful of, of that. So we don’t need to get into any specifics and we’re not giving investment advice.

[00:19:08] Patrick: We’re trying to solicit investment, but, uh, just trying to understand how all of this works.

[00:19:13] Kolby: Yeah, long story short, we buy everything. So you talk about different investment vehicles when it comes to the life insurance policies. Before I jump into some of the other financial products that we roll rolled out and are rolling out this year, um, from key man, the example I gave earlier, the, the hypothetical gym client.

[00:19:31] Kolby: Split dollar agreements. We do buy that buy, sell agreements, Koli, Boli, PPLI transactions. Definitely a hot topic, premium finance right now, especially with the environment that we have with the rate hikes we’ve seen in the last, what, six to eight months, it seems like it’s ever changing term rescue strategies.

[00:19:48] Kolby: Another big one, because these insurance carriers, again, term is a great, just like regular insurance is a great tool. It’s a great vehicle, but until it’s not, what do you do? We do have a term rescue program that we do. We buy survivorship policies for for dual insurance. We even have retained debt benefit offerings where you can sell a portion of your life insurance policy, which is great right now.

[00:20:12] Kolby: I mean, let’s face it, your average American, we’re very conservative right now, in my opinion, and it’s because of, um, Just the environment we have with these, with these rates. And I mean, you go to the store and you see what eggs cost, gas, everything, but we have a hybrid offerings and we have an internal fund, which is a main reason why we were able to go public because we have this internal fund made up of our original partners.

[00:20:32] Kolby: They were on wall street as financial professionals and producers and insurance. And they came together to ensure this option, but since our IPO, We now have dates are still tentative, but we now are rolling out a life settlement mutual fund coming up here at the end of quarter one beginning of quarter two, we even have five year structured notes, we had one in December I believe it was a one day saw the note was for 9.

[00:20:59] Kolby: 875 percent if memory serves me correctly. And a second one was rolled out here in January. So that structured note was another tool that, um, just the national accounts that I work with at advocates, a lot of investors were, we’re definitely interested in that, but also we have a new, um, insurance dedicated fund and IDF that we’re considering, but obviously we need some components to work in our favor for that, but, um, yeah, a lot of, a lot’s happening in this industry.

[00:21:25] Kolby: A lot’s happening at advocates. It’s definitely at the tip of the iceberg. This

[00:21:29] Patrick: is great. You touched on a bunch of really good stuff in there, and I’m going to walk us back and, and sort of pick up on some of those things. So you talked about term rescue, I believe was the term you use. So the question I have there is in my simple mind, I believe I understand how this works.

[00:21:47] Patrick: But a term policy has an end, you know, your term insurance is rarely pays out because it, you know, the, the term expires and then the insurance goes away. So can you talk us a little bit about through how. Abacus makes a term insurance policy work in this scenario. I can think of a few cases off the top of my head.
[00:22:06] Patrick: The simple fact

[00:22:07] Kolby: is, like I mentioned, the term policy, it’s a great vehicle and until it’s not, and when it’s not, it expires, like you said, it’s not a permanent product. It’s not a permanent life insurance product. It’s temporary. It says it in the word term. You do have a buyer in abacus that is wanting to buy this term policy and it expires.

[00:22:25] Kolby: Why would a buyer be interested in an expiring contract, an expiring asset? I think of it as, listen, you have three options. You got annual renewable term coming up on the horizon, and for the viewers out there who may not know what annual renewable term is, it’s when the contract expires, well it doesn’t actually expire.

[00:22:45] Kolby: It’s a 10 20 year term, for instance. After that 20 years, you think, oh, it’s over, the contract’s done, it expires, it lapses, it’s over, my asset’s gone. When that is in fact not the case, you can annually renew that contract. One year at a time, hence the acronym A. R. T. And what that does is it’s annual renewed every year.

[00:23:07] Kolby: So that premium schedule that that stream, it increases sometimes in those cases, exponentially 5 10 ridiculously compounding over the years. And for an insured who may be 65 60 70 75. It’s fixed income. It’s, it’s not feasible. It’s not optimal for them. So do, so the options are a, you pay into it. That’s not always feasible.

[00:23:32] Kolby: B you lapse it, which Patrick, I can argue with you. Why would you want to lapse any asset regardless of what sector it may be in? Why would you, at least before uncovering what options you may have. So then the third option is come speak with Kolby or someone else at advocates and see if you could sell your policy for us.

[00:23:50] Kolby: So, but the key to term policies is that. There is a conversion deadline and each product is different, but it would depend on, you know, when that conversion deadline is, but we look to convert those terms and you can convert them to a permanent product to make a

[00:24:05] Patrick: long story short. Yep. Fantastic. That’s, uh, I knew that’s where you, where you were going, but I wanted to make sure, like, it doesn’t make sense why anybody would buy a term policy if it just expired and, you know, I was out with my money.

[00:24:17] Patrick: So thank you. The next thing you touched on and. If we’re thinking about opposite ends of the spectrum on one side, we’ve got term insurance, low cost on the other side. I think one of the more complex transactions is one of the things I was working on today for a client. They have a premium finance policy.

[00:24:33] Patrick: Okay. So we think about premium finance, just a quick overview for listeners real quick. Like I can pay cash for a piece of real estate. You know, that’s one way to buy it. And that’s how insurance is typically sold. I just pay cash for premiums and, uh, where I put a lump sum in and, you know, I’ve got a death benefit at the end, or, you I can finance that premium, hence premium finance life insurance.

[00:24:55] Patrick: So I can borrow the money. Generally, it needs to be collateralized by other assets. So I can’t do this if I’m broke and I need to have significant wealth. And most, most insurers and most premium finance companies won’t look at you unless you’re Got millions of dollars of assets. So like, we’ll, we’ll just get that out of the way, but you touched on an interesting thing in regards to leverage cuts both ways, you know, it’s a, it’s a beautiful thing, it can help with tremendous growth, but if you get on the wrong side of leverage, it can be kind of ugly.

[00:25:24] Patrick: And right now we’re seeing interest rates rising and there’s premium finance policies, like they might’ve looked really, really good when interest rates were. 3, 4%, but now that we’re up at 7, 8, 9%, it’s a totally different ballgame. Can you just walk through a scenario where how abacus can get involved when I’ve got this sort of debt, that’s sort of growing faster potentially than my, my cash values in my life insurance policy and the policy is going to get itself upside down.
[00:25:51] Kolby: I definitely agree with your points. It’s definitely a tool for your more affluent client. You know, obviously, the more juice in the policy, the larger the face value, the more value we could potentially squeeze out of the transaction to put it in a nutshell. Long story short, it is essentially you have a premium finance loan or any loan, really, for that matter.

[00:26:09] Kolby: But for the sake of the conversation, premium finance loan. And it may have been affected by the this rate environment that we’ve had from the last six, eight months, and then some, like you mentioned, it may have looked great at first, but now it’s come back to hurt them and bite them in the rear end. So what they do is we, they come to abacus and see if we can pay off that premium finance loan, save their collateral that is in jeopardy of getting.

[00:26:33] Kolby: Taken or in other words at risk. What we do is we pay off the premium finance loan. We save their collateral We save them from paying additional interest on that loan going forward sometimes six seven eight figures worth of coming from their cash flow. We pay that off, we rescue them and we give them a light settlement on top of that.

[00:26:53] Kolby: So most cases are typically, I would say five, 10 million plus life insurance policies, but it’s a great tool for those who don’t have another option. They’re, they’re kind of stuck in a corner and they’re looking to get out from underneath this, this premium finance tool that was helping them originally.

[00:27:10] Patrick: Yep. Fantastic. That’s great. And there’s lots of different policies in between there that could be a whole life policy, could be a universal life index, universal life. My guess is there’s probably even some variable universal life you guys are getting involved in. And so in most cases on those, we’ll call it traditional permanent policies.
[00:27:29] Patrick: Would you say You’re getting involved when it’s a cashflow issue, like the client’s just going, I’m tired of putting the dollars into this policy. I need to maximize the dollars I’m getting out of it. I can surrender it or I can call it have a kiss. Is that, is that generally the case is like, I’m really tired of paying the premiums.

[00:27:48] Patrick: Let’s come up with another option.

[00:27:50] Kolby: I would say that’s the most common seeking liquidity, especially again right now with the current environment we have, it’s a good thing to have a lot of cash on hand for whatever could come on the horizon, going forward but other cases I’ve seen it, it could be underfunded as I mentioned earlier overly funded the cash value could be too large Patrick I actually had a case in quarter four where we did something very creative called a max withdrawal illustration.

[00:28:14] Kolby: Which it took out the cash value, the client took the cash surrender value from the policy, reduced the death benefit, and that priced better in our pricing model. Because you think, why would you consider this option if the cash surrender value is extremely large? Because we have to beat that cash surrender value.

[00:28:32] Kolby: If we can’t beat that, then why would they even consider this transaction? So I was able to do a max withdrawal illustration on this particular case, and the client was able to, it was, I remember it was a two million dollar policy, Um, this one actually was also a key man policy, had roughly 360, 000 in cash surrender value.

[00:28:50] Kolby: So a good chunk of change and we couldn’t beat the cash. But once we tried that different illustration, we pulled out the cash, we were actually able to fund them at price properly with the underwriting. We got an additional 60, 000. So they walked away with almost, I think a little over 400, 000 in a life settlement and cash surrender value in their pockets.
[00:29:09] Patrick: Fantastic. I love it. Kolby, this has been wonderful to get a real understanding about how a life settlement is an option for a policy that maybe is no longer a fit. Is there anything else that we need to be talking about that we haven’t already touched on in regards to how applicants can get involved and add value to a client situation?
[00:29:29] Kolby: Whether it’s a client situation for an advisor, a wealth, a wealth manager, financial professional, if you will, or if it’s your Your regular, you know, Joe Smith out in Oklahoma at the, at the bare minimum, my background is more holistic financial planning. That’s more of my background. So I look at it purely from an epithetical point of view.

[00:29:49] Kolby: And so does abacus, we look at this as, as educational. Our intent is to inform you on your insurance assets worth. Most people don’t know that it carries this capital. They don’t know that there is a net present valuation. In this asset. So all we ask is for that in force illustration for us to get you those values get you those appraisals, and you’ll walk away with knowledge and power, because you now know more about your life insurance policy but Matt Ganofsky Scott Kirby, Sean McNeely that are three original partners they all came together met and I believe up in Wall Street, they came together to ensure this option.

[00:30:24] Kolby: For people in life insurance and I think they’ve done so and it’s continued to only increase awareness and funding since our IPO, which we’re obviously very excited about.

[00:30:34] Patrick: Yeah. Yeah. Fantastic. I want to touch based on something you mentioned. What does it cost to get advocates involved to give me an appraisal for what my life policy is worth?

[00:30:44] Kolby: That’s a great question, Patrick. This entire process, steps one through three, pre pricing, underwriting, sending the case to the open market to see what the fair market value may hold. It’s entirely complimentary. We do all the work. We are a back office, from helping advisors get licensed at a state level, to helping the insured Figure out if the policy can even convert from a term, we can get on the phone with them with their servicing reps.

[00:31:10] Kolby: We’re not some small brokerage shop. We’re very large. We have currently 107 employees and we’re still rapidly growing. There’s a lot of new things that are going to be heading our way here. And, and it’s going to be rolled out, uh, going forward here in 2024.

[00:31:23] Patrick: Fantastic. That’s great. And my guess is like, you’re just going to continue to get more and more efficient on one hand.

[00:31:30] Patrick: Uh, we’ve got big data, right? Big data is a little scary. You know, it’s, it knows what I’m thinking and get coupons in the mail for things that I’ve like, how did you know I wanted that thing? Right. I would guess like all of this data has got to be coming together. We’re seeing it on the life insurance side, on the underwriting, like they’re able to issue policies awfully quickly because they’ve got so much access to data.

[00:31:53] Patrick: And I’m assuming that same thing is true for your business on the backend. You’ve got access to. So lots of data, once clients give you authorization to go, go look for some of those things, uh, pretty quickly, you can make a determination on, on how to, how to move forward. So, and I understand we still need the attending physician statements and all those other things that, uh, come, but I think, you know, again, as data gets digitized and moves around a little quicker and easier, it should make your jobs easier as well.

[00:32:21] Patrick: So any comments on big data and how that, that helps you guys.

[00:32:25] Kolby: We’ve got longevity data on underwriting that goes back 2025 years, and this is great because on the life insurance side of the house, they’re typically more aggressive with how they underwrite insurance and trying to write them these policies from a life settlement perspective, we look at it as an investment.

[00:32:44] Kolby: That’s, that’s the opportunity here. It’s an investment. It’s an asset. So, of course, with any asset, just like if you’re doing your financial, your personal financial planning for your own, you know, significant other and yourself, you’re going to be conservative with those figures. So, the same goes with our underwriting.

[00:33:00] Kolby: It is typically more conservative and a lot of it is, and largely in part to, there’s a lot of funding, new technology. It’s the year 2024. In the early 2000s, late nineties and insured a male with prostate cancer that that was almost more likely than not, it was terminal. Now you see insureds living longer than ever with this because the funding was the funding, the technology, institutional resources were thrown at them and we’re seeing longer mortalities.

[00:33:26] Kolby: I think the word Patrick is centenarians, people who live past 100. We’re seeing more of those in this country longer than ever.

[00:33:32] Patrick: Absolutely. Yeah. And that’s, that’s interesting. You know, just thinking about abacus and. Your process, if there’s some tremendous medical breakthrough like that, that could, uh, cause a little, little bit of havoc underwriting with COVID, right?

[00:33:48] Patrick: Yeah, absolutely. That probably, that probably shoved it the other way, right? Like, Oh, yeah, this is mortality. We weren’t expecting a very good, anything else we should touch on before we wrap up?

[00:33:59] Kolby: The stat that always blows me away. And this is all public information. It’s called Lisa life insurance settlement association, acronym, L I S a Lisa.

[00:34:08] Kolby: And Lisa every year comes out with different analytics and statistics for all the major ballplayers in this space. Typically there’s about eight to 10, um, heavy hitters. We’ve paid out almost more than anyone. I believe our payout right now is above 20 percent of these death benefits. The industry average is 12%.

[00:34:27] Kolby: So, um, we’re roughly double that. So if it’s monetary value you’re looking for, there’s definitely a competitive advantage working with the only life settlement company that’s publicly traded, but it’s funny. You look at the industry as a whole life insurance every year, there’s roughly, and this is My point with Lisa, roughly 200 to $200,000,000,250 billion is lapsed every year in life insurance policies, 200 to 250 billion with a B.

[00:34:58] Kolby: Can you take a guess what our market

[00:34:59] Patrick: penetration is? Yeah, I was going to say one or 2%, but yeah, you know, that’s, uh, yeah, that’s tremendous. And just think of the 97 percent of people that are missing out on opportunity there, you know, there could be economic value beyond what they’re receiving when they, they let those policies lapse that they’re not experiencing otherwise.

[00:35:22] Patrick: So

[00:35:23] Kolby: exactly. And that’s why our intent is. Informational educational J Jackson, our CEO, he makes the comment all the time. If people actually knew their fair market value, their net present value of their life insurance policy, 90 percent of policies would never lapse. Absolutely. They would never, they would never pay a claim.

[00:35:39] Patrick: Yeah. I, but I think it gets back to that cashflow question, right? Like if I have unlimited cashflow, I can keep that thing going, but it’s, uh, unfortunately I think times come up. People don’t have the dollars to keep the policy in force. And so they’re, they’re looking at all their options. And I’m glad that Abacus is available to, uh, help people monetize this, this asset that less than 1 percent of people, like you mentioned at the start of the call today, uh, less than 1 percent of people sees an asset.

[00:36:06] Patrick: It’s like they. It’s their opportunity to convert it into cash. That’s fantastic. Well, Kolby, I appreciate all of your insight into the life settlement business and how Abacus works and how you’re a great option for, for people. There’s a lot here. We might have to do this again in a year or so and see where the industry’s going and see if, you know, we’ve gotten off that 3%, if more people, four or five, six, 7 percent are, uh, considering Abacus, that would be, that’d be a great thing.

[00:36:32] Patrick: So appreciate you. Appreciate all your insights.

[00:36:43] Patrick: Thank you for listening to the vital strategies podcast for links to the resources mentioned in today’s show. See the show notes of this episode at vital strategies. com forward slash episode 20, follow the vital strategies podcast, wherever you listen to podcasts and don’t forget to rate and review the show, letting us know how these tips are helping you pay less tax and build more wealth.

[00:37:05] Patrick: It’s never too early to start with your tax planning for 2024. We are on a mission to help our listeners collectively save over 1 billion in income tax. Go to 5minutetaxmakeover. com and download your free resources that will help you save up to 10, 000 or more in income tax this year. When you pay less tax, you can build more wealth and live a great life.

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