- Staff
- #1
As has been mentioned, the concept of "free" life insurance has been around for a long time. I do know some people who actually HAVE made millions doing it, and I will explain how their version works.
You start off with a financial institution, perhaps a bank, or an investment house or even an insurance company, that has a lot of money that they need to put in safe domestic investments. In this case, it was one of the top 5 largest banks in the country.
The brokers are asked to look for people that are over age 75, in decent health, and have a net worth of at least 5 million dollars. You approach them and explain that they have an asset that they are under utilizing and it is their insurability. Since they have a large asset base, insurance companies would write a large policy on them without any problems.
As an example, for someone with a net worth of 20 million, the offer would be: The bank will loan a trust 4 million dollars, which will be used to purchase a SPIA on the prospects life that pays out enough every year to pay for the premiums on a 10 million dollar life insurance policy. The bank will give the wealthy prospect $500,000 for free right now, for participating in the transaction. The policy is owned by the trust, which has an outstanding loan from the bank. When the person lives past 2 years, the bank buys the debt ridden trust for another $500,000. At this point, the prospect has made 1 million dollars for "free" and the bank has invested 5 million dollars in a policy that will pay them 10 million when the person dies.
The essence of the arbitrage is that if the person lives for a short time, the life insurance company loses, if they live for a long time, the annuity company loses. No matter what happens, the bank, the prospect and the agent will always get their money. Sometimes the bank gets a good rate of return, and sometimes a poor rate, but averaged out, they are doing very nicely, and the money is safe.
These numbers are just an example, and their are many variations of this type of thing. The originators of this idea tell agents and brokers that if they bring them a prospect and they qualify for this arbitrage, then they will get a cut of the commissions from both the SPIA and the life insurance. 2 or 3 cases and you are a millionaire!
The way that this is pitched most frequently is to find non-profit organizations that have some wealthy donors. It is pitched that the non-profit will get a piece of the 500k, or perhaps the full thing. They in turn can approach their donors and ask if they would like to do something to benefit the organization, and it won't cost them anything.
Now THIS is a product that has made millionaires!
You start off with a financial institution, perhaps a bank, or an investment house or even an insurance company, that has a lot of money that they need to put in safe domestic investments. In this case, it was one of the top 5 largest banks in the country.
The brokers are asked to look for people that are over age 75, in decent health, and have a net worth of at least 5 million dollars. You approach them and explain that they have an asset that they are under utilizing and it is their insurability. Since they have a large asset base, insurance companies would write a large policy on them without any problems.
As an example, for someone with a net worth of 20 million, the offer would be: The bank will loan a trust 4 million dollars, which will be used to purchase a SPIA on the prospects life that pays out enough every year to pay for the premiums on a 10 million dollar life insurance policy. The bank will give the wealthy prospect $500,000 for free right now, for participating in the transaction. The policy is owned by the trust, which has an outstanding loan from the bank. When the person lives past 2 years, the bank buys the debt ridden trust for another $500,000. At this point, the prospect has made 1 million dollars for "free" and the bank has invested 5 million dollars in a policy that will pay them 10 million when the person dies.
The essence of the arbitrage is that if the person lives for a short time, the life insurance company loses, if they live for a long time, the annuity company loses. No matter what happens, the bank, the prospect and the agent will always get their money. Sometimes the bank gets a good rate of return, and sometimes a poor rate, but averaged out, they are doing very nicely, and the money is safe.
These numbers are just an example, and their are many variations of this type of thing. The originators of this idea tell agents and brokers that if they bring them a prospect and they qualify for this arbitrage, then they will get a cut of the commissions from both the SPIA and the life insurance. 2 or 3 cases and you are a millionaire!
The way that this is pitched most frequently is to find non-profit organizations that have some wealthy donors. It is pitched that the non-profit will get a piece of the 500k, or perhaps the full thing. They in turn can approach their donors and ask if they would like to do something to benefit the organization, and it won't cost them anything.
Now THIS is a product that has made millionaires!
