THE LIFE SETTLEMENT ADVOCACY PROGRAM

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2 TABLE OF CONTENTS KEY QUESTIONS SIX QUESTIONS TO CONSIDER LIFE SETTLEMENT ADVOCACY PROGRAM OVERVIEW LIFE SETTLEMENT ADVOCACY PROGRAM DETAILS TOOLS AND RESOURCES WHAT MAKES A GOOD LIFE SETTLEMENT PAR POLICY APPRAISAL REPORT LIFE SETTLEMENT FILTER LIFE SETTLEMENTS: 2013 MARKET REVIEW CASE STUDIES WIDOW USES LIFE SETTLEMENT TO PAY PREMIUMS ON OTHER POLICIES HELD BY TRUST PHYSICIAN SELLS PART OF TERM POLICY AND MAINTAINS A PORTION RETIRED EXECUTIVE SELLS VARIABLE POLICY FOR 30% OF FACE AFTER NO OFFERS LAST YEAR 2013 VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

4 SIX QUESTIONS TO CONSIDER WHEN EVALUATING LIFE SETTLEMENT OPPORTUNITIES 1 DOES THE BROKER YOU ARE USING TREAT THIS TRANSACTION AS A SECURITY? 3 DOES THE COMPANY WORK WITH SEVERAL DIFFERENT LICENSED LIFE SETTLEMENT PROVIDERS? Why is this important? When a company treats this transaction as a security, it means that it is not only held to state insurance regulations governing the business but also must adhere to laws and practices relating to security transactions. This requires the company to perform such tasks as due diligence on all funding sources, full disclosure of both compensation and offers, and employ a negotiating process that assures best execution on every transaction. Simply put, by treating the transaction as a security, a company can minimize the risks associated with conducting a life settlement. Why is this important? Life settlement offers may vary widely among providers and are very sensitive to variables such as the insured s life expectancy (LE), the policy s premium requirements, market interest rates, and the status of each funder s current portfolio of policies. For example, at any given time, one company may have a large inventory of policies insuring individuals with short life expectancies. To balance its portfolio, the company will need to buy policies where the insureds have long LEs. Thus, for a limited period, the company will have strong money and will make more aggressive offers on long LE policies. 2 ARE THE COMPANY S FUNDING SOURCES EXCLUSIVELY INSTITUTIONAL AND ARE THEY LICENSED IN YOUR STATE? Why is this important? In a life settlement transaction, the policy is being sold to a third party. Because the third party receives its return on investment only when the insured passes away, it is extremely important to know who is buying the policy since they have an interest in the insured s passing. With institutional buyers, these policies are held in large blind trusts to assure client confidentiality. These trusts may own hundreds of millions of dollars of life insurance so that performance is not based solely on the longevity of a single insured. Investors experience returns based on the performance of the entire pool of assets. With this in mind, you can see how important it is to ensure you are selling policies only to institutional funds that have undergone a rigorous due diligence process. The requirement that providers are licensed in your state may also add an additional level of due diligence, as conducted by the state. 4 There are numerous circumstances that cause one company to have strong money at one point in time, and then a completely different company to have strong money only weeks later. For this reason it is important to shop policies among a large number of institutional providers in order to capture the strong money in the market at any given point in time. See National Association of Insurance Commissioner s 2007 Amendments to Viatical Settlements Model Act 4 th Circuit Court of Appeals Life Partners v. Morrison Case No and Morningstar, June, 2006, Our Take on The Secondary Market For Life Insurance. DOES THE COMPANY NEGOTIATE OFFERS THROUGH A FORMAL, WRITTEN BID PROCESS? Why is this important? Because it is impossible to predict exactly which providers will have the strongest money at any given point in time, it is crucial to have a consistent and written process that finds this money for you. A formal, systematic bid process that forces all providers to play on the same level playing field and awards cases strictly on the merit of the provider making the highest offer allows consumers to know they are receiving a true fair market value for the sale of their policy. See Fourth Circuit Court of Appeals Life Partners v. Morrison Case No and National Underwriter, August 6, 2007, Settlement Firms Say Policyholder Information Is Safeguarded. Also, an informal survey at ValMark Securities uncovered several cases in which initial offers were only 25% of the final high offers made via a formal bidding process. The finding underscores the importance of a formal bidding process among multiple, institutional funding sources in order for clients to be confident they are receiving a fair market value for the sale of their policies. PAGE 1 OF VALMARK SECURITIES, INC. ALL RIGHTS RESERVED

5 SIX QUESTIONS TO CONSIDER WHEN EVALUATING LIFE SETTLEMENT OPPORTUNITIES 5 IS THE COMPANY S COMPENSATION UNIFORM AND CAPPED WITH ALL PROVIDERS? 6 ARE BOTH THE OFFERS AND THE TOTAL COMPENSATION FULLY DISCLOSED? Why is this important? Uniform and capped compensation assures that the interests of the broker and your advisor are aligned with obtaining and presenting the highest offer for the client. For this reason, both clients and their advisors should insist that the broker demonstrate in writing that compensation is both uniform and capped. For example, if compensation is not uniform with all providers, the broker you are using may have an incentive to push business to the provider that offers them higher compensation, which may or may not be the provider that offers the client the most money. Capped compensation should be required as well to ensure that the company has a ceiling for the level of compensation it receives for brokering a transaction. Over the years there have been regulatory actions by some governmental agencies, such as a task force investigating life settlements, which was prompted by providers that offered bribes (called co-brokering fees) to steer business their way at a lower price than the client would have otherwise received. This is an unacceptable practice and the reason why the broker should be asked to demonstrate in writing that compensation is both uniform and capped. See formal complaint issued by the People of The State of New York (by Eliot Spitzer) v. Coventry First ; Florida Office of Insurance Regulation s Notice and Order To Show Cause (Case No ) issued to Coventry First; and Section 7 Uniform Prudent Investor Act. Why is this important? In addition to requiring uniform and capped compensation, consumers should demand that all offers and total compensation to all parties be fully disclosed. Full disclosure is perhaps the most important way to assure that your interests are protected and that you are making an informed decision. Forty-Two states have passed regulations which require full disclosure. There are still states that do not require compensation disclosure and have not enacted regulations. Clients should be proactive in seeking full disclosure of all offers on the table as well the compensation paid to agents and brokers facilitating the life settlement transaction even in a nonregulated state. Only a company willing to disclose this information should be worthy of your business. See NASD Notice 06-38; Section 7 Uniform Prudent Investor Act; National Association of Insurance Commissioner s 2007 Amendments to the Viatical Settlements Model Act; and National Underwriter, March 2006, NASD Chairman Eyes Secondary Life Market. IMPORTANT INFORMATION In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. ValMark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. SECURITIES OFFERED THROUGH VALMARK SECURITIES, INC., MEMBER FINRA, SIPC 130 SPRINGSIDE DR., SUITE 300 AKRON, OH (800) PAGE 2 OF VALMARK SECURITIES, INC. ALL RIGHTS RESERVED

7 THE LIFE SETTLEMENT ADVOCACY PROGRAM 6. THE CLOSING AND FUNDING PROCESS SUPPORT SYSTEMS: Professional Advisor to Guide Client through the Closing Process Sample Provider Closing Contracts 6 1. DISCOVERING LIFE SETTLEMENT OPPORTUNITIES 1 SUPPORT SYSTEMS: Navigating the New Frontier of Life Settlements What Makes a Good Life Settlement? Life Settlement Pre-Screening Resources 5 5. THE CLIENT DECISION SUPPORT SYSTEMS: Professional Advisor to Guide Client through the Decision-Making Process 4 THE LIFE SETTLEMENT ADVOCACY PROGRAM 2 2. EVALUATING POTENTIAL OPPORTUNITIES SUPPORT SYSTEMS: The Life Settlement Filter The Policy Appraisal Report Life Settlement Pre-Qualification Questionnaire 4. GENERATING AND NEGOTIATING OFFERS SUPPORT SYSTEMS: Proprietary Bid Process Transaction Treated as a Security Due Diligence on all Funding Sources Full Disclosure of Compensation 3 3. INITIATING THE LIFE SETTLEMENT TRANSACTION SUPPORT SYSTEMS: The Life Settlement Engagement Agreement The Life Settlement Inquiry 2013 VALMARK SECURITIES, INC. ADAPTED FROM THE STRATEGIC COACH SECURITIES OFFERED THROUGH VALMARK SECURITIES, INC., MEMBER FINRA, SIPC. 130 SPRINGSIDE DR., STE. 300, AKRON, OH

8 INTRODUCTION THE LIFE SETTLEMENT ADVOCACY PROGRAM OVERVIEW The Life Settlement Advocacy Program is designed to walk you through a life settlement transaction and to ultimately provide the highest level of value for a client s policy. The Life Settlement Advocacy Program organizes the life settlement transaction into six essential steps. This introduction to the program provides an overview of each of these steps. The Life Settlement Advocacy Program offers a variety of support tools and support systems to help you complete each of the necessary steps involved in a life settlement transaction. In addition to being aware of the opportunities that exist in the life settlement marketplace, it is important to have a system in place that can help support a best practices approach to this business. The Life Settlement Advocacy Program can provide assistance with this process VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

9 INTRODUCTION THE LIFE SETTLEMENT ADVOCACY PROGRAM STEP 1: DISCOVERING LIFE SETTLEMENT OPPORTUNITIES The first step of The Life Settlement Advocacy Program is to discover the opportunities that exist within the life settlement marketplace. One of the most important components of discovering life settlement opportunities is proper education. In order to better educate clients on this marketplace, we have developed a few support tools to assist in the education process: Navigating The New Frontier of Life Settlements a Power Point presentation designed to explore the various elements of life settlements. It touches on subjects such as the history of the marketplace, current market conditions, criteria for potential cases, sample cases, and many other topics. What Makes a Good Life Settlement a one page document that summarizes why and when a life settlement may be a viable option. It is broken into three sections; the advantages of a life settlement, the criteria for identifying a good life settlement, and finally, the situations in which a life settlement may make sense. Why ValMark? a document that discusses ValMark s approach to this business by treating it as a security. In every transaction we complete a due diligence on funding sources, client suitability, best execution, and full disclosure of all offers and total compensation. Essentially, we are compelled to provide clients engaging in this transaction the same safeguards and regulations they receive with any other security transaction. The goal of this piece is to show that being aware of the opportunities that exist in the marketplace is not enough. It is essential to take the next step and and become affiliated with a professional life settlement program that strives to display a true sense of integrity and client awareness. STEP 2: EVALUATING POTENTIAL OPPORTUNITIES Once potential life settlement opportunities have been identified, the next step is to evaluate them. The Life Settlement Advocacy Program offers the following support tools to help with this process: The Life Settlement Filter TM -- a questionnaire designed to gather information about both the insured and the life insurance policy. The answer to each of the questions has a point value associated with it. Once the questionnaire is completed, the point values of each of the questions are tallied. The total score helps to describe the likelihood of receiving life settlement offers on the secondary market. Depending on the point total, the viability of a case ranges from highly unlikely to most likely. The goal of this questionnaire is to help to determine the marketability of a particular case. The Policy Appraisal Report TM a proprietary pricing model and analytical assessment tool that calculates an estimated range of offers for a particular policy VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

10 INTRODUCTION THE LIFE SETTLEMENT ADVOCACY PROGRAM STEP 3: INITIATING THE LIFE SETTLEMENT TRANSACTION STEP 5: THE CLIENT DECISION Once a case has been evaluated and classified as a good candidate for life settlement, the next step is to initiate the life settlement transaction. There are two support tools used in this process. The Life Settlement Engagement Agreement a formal agreement between the client and the advisor which identifies their commitment to one another in the transaction. This includes full disclosure of how total compensation with be calculated. Once the offer process has ended and a single highest offer has been made, it is now time for the client to make a decision. Our advisors can work with clients to help evaluate their situations and determine whether or not a life settlement is truly the right option. We have extensive experience and expertise in both the life insurance and life settlement marketplaces. With a decision this significant, it is important to consider all of the options. We can help in this process. The Life Settlement Inquiry TM a record that serves as both the formal application and medical authorization and is required to engage in a life settlement transaction. STEP 4: GENERATING AND NEGOTIATING OFFERS One of the key features of the Life Settlement Advocacy Program is the proprietary bidding process. Because we treat this transaction as security, we are obligated to ensure that the best execution occurs on every single life settlement transaction. In order to facilitate this, we developed a systematic bidding process through which we generate offers from our providers. We believe that this process allows the sellers to be confident that they are receiving a fair market value for their policy. It is important to note that only institutional providers are eligible to purchase policies in The Life Settlement Advocacy Program TM. STEP 6: THE CLOSING AND FUNDING PROCESS If it is determined that a life settlement is truly the best option, The Life Settlement Advocacy Program offers a support system to help clients through the closing process. There are sample closing contracts available for client review in order to ensure their highest level of comfort with the transaction. In addition, when the time comes for clients to execute the formal agreement necessary to sell their policy, our professional advisors will walk clients and their representatives through the closing process step-by-step. In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. ValMark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Securities offered through ValMark Securities Inc., Member FINRA, SIPC VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

11 TOOLS AND RESOURCES WHAT MAKES A GOOD LIFE SETTLEMENT PAR POLICY APPRAISAL REPORT LIFE SETTLEMENT FILTER LIFE SETTLEMENTS: 2013 MARKET REVIEW 2013 VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

12 WHAT MAKES A GOOD LIFE SETTLEMENT? POTENTIAL ADVANTAGES OF A LIFE SETTLEMENT Receive fair market value for your life insurance policy (often times an undervalued asset) Flexibility in the financial planning process (use life settlement proceeds to fund other strategies) Effective policy valuation (for both individuals and fiduciaries) Relief of an ongoing premium obligation Higher payout than cash surrender value Proceeds can be used for alternative funding needs (long term care, retirement, etc.) POSSIBLE LIFE SETTLEMENT CANDIDATES Individuals age 65 and older (70 years or older if female) Life expectancy of 13 years or less Decline in health from original policy issue Life insurance policies with a net death benefit of $250,000 or more (no maximum) Policy type Universal Life, Guaranteed Universal Life, Survivorship Universal Life, Variable Universal Life and Convertible Term (Sometimes Whole Life) Owner can be an Individual, Trust, or Corporation Premium should be 5% of Death Benefit (or less) and Cash Surrender Value should be 15% of Death Benefit (or less) IDENTIFYING LIFE SETTLEMENT OPPORTUNITIES Client no longer wants to pay premiums and would like to surrender the policy for cash Estate issues have changed making life insurance unnecessary Current policy is underperforming and client would like to get into a new guaranteed product (alternative to a 1035 exchange) Client would like to exchange current policy for a variable one that provides equity exposure (alternative to a 1035 exchange) Term policy is nearing the end of a term period. The client can convert to a permanent product and receive, through a life settlement, proceeds for an otherwise worthless asset. Business is sold or changes are made that result in insurance no longer being needed Changes within a buy/sell agreement that make insurance no longer necessary An executive retires and receives unneeded insurance through a deferred compensation arrangement Polices that are not meeting the objective of an ILIT and need replaced Charitable-owned polices that are underperforming and need replaced in order to preserve benefit to the charity Family situations that require changes in insurance (divorce, etc.) In a life settlement arrangement, the current policy owner transfers the ownership and beneficiary designation to a third party, who will receive the death proceeds upon the death of the insured. As a result, this buyer has a financial interest in the seller s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. Individuals considering life settlements should carefully read the entire sales agreement, consult their advisors, and consider all available options before selling their policies. ValMark Securities and its registered representatives act as brokers in the life settlement transaction and may receive a fee from the purchaser. A life settlement transaction may require an extended period of time to complete. Due to the complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. Neither ValMark Securities nor its registered representatives provide tax advice. ValMark Securities considers Life Settlements as a security transaction. Securities offered through ValMark Securities Inc., Member FINRA, SIPC VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

13 THE POLICY APPRAISAL REPORT TM M E A S U R I N G Y O U R P O L I C Y S P O T E N T I A L NAVIGATING THE NEW FRONTIER OF LIFE SETTLEMENTS PART OF THE LIFE SETTLEMENT ADVOCACY PROGRAM

14 THE POLICY APPRAISAL REPORT We are pleased to provide you this report aimed at increasing the efficiency of the services we provide to you, our valued client. In order to properly advise you, we must be able to identify both promising opportunities as well as any obstacles that may be involved in your case. This report is intended to sketch a picture of your potential life settlement. With such a picture in hand, together, we can evaluate whether or not a life settlement is worth pursuing based on its likely outcome. We trust you will find it helpful in planning your financial future. The amount of time it takes to complete a typical life settlement may range between 4 to 8 months. While we are limited in our ability to reduce the amount of time it takes to complete a case, what we can do is help identify the likelihood that a particular case will receive offers in the secondary market. The goal is to eliminate going through this lengthy process only to receive an unfavorable result. This report helps to identify the probability that a case will be a success, based on the criteria you provide. The statistics on the following page are derived from a proprietary life settlement pricing model that was developed by our broker dealer. The contributors include a medical director, an actuarial analyst, and various members of ValMark s executive team. In every report, over 100 different net present value calculations are simulated that take into account the possibility for variation in the life expectancy and the providers desired rate of return. The following page summarizes the results of these calculations. Please note that the following summary is not intended to predict the worth of any policy. There is no guarantee that your policy will receive an offer on the secondary market. PART OF THE LIFE SETTLEMENT ADVOCACY PROGRAM VALMARK SECURITIES

15 THE POLICY APPRAISAL REPORT CLIENT INFORMATION NAME SEX AGE RATING / LE SMOKER VALUED CLIENT MALE MO. NO POLICY INFORMATION POLICY TYPE DEATH BENEFIT ANNUAL PREMIUM CSV VUL $1,200,000 $137,168 $39,043 OFFER INFORMATION CHANCE YOUR OFFER TO CLIENT IS GREATER THAN THE CASH SURRENDER VALUE Greater Than CSV 79.00% Greater Than 150% of CSV 76.10% Greater Than 200% of CSV 72.70% AVERAGE OF OUR SCENARIO SIMULATION Average Gross Offer Before Commissions $218, CHANCE OF GETTING A SPECIFIC OFFER TO CLIENT You Have A Percentage Chance Of 68.50% Getting A Gross Offer Larger Than $100,000 *In situations where the providers' offers will not exceed the cash value of your policy, no offer will be made. You may then choose to retain your policy or surrender it to the issuing company. Please note that the preceding summary is not intended to predict the worth of any policy. There is no guarantee that your policy will receive an offer on the secondary market. In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. ValMark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser that will reduce the final settlement offer significantly, as determined by the compensation schedule. *CSV Cash Surrender Value Securities Offered Through ValMark Securities, Inc., Member FINRA, SIPC.130 Springside Dr., Suite 300, Akron, OH (800) PART OF THE LIFE SETTLEMENT ADVOCACY PROGRAM VALMARK SECURITIES

16 THE LIFE SETTLEMENT FILTER INSURED: FACE AMOUNT: LIFE SETTLEMENT EXPECTATIONS: $ INSTRUCTIONS This worksheet will help you determine whether a senior client (age 65 and older) might be eligible for a life settlement. This is meant to be used as a screening tool only. Insureds whose point total indicates probable acceptance may, in fact, not qualify based on a more in-depth review. All applicants must submit an inquiry, be underwritten, and have their policies and other data analyzed before final acceptance or rejection can be determined. By completing this worksheet, please note that all insureds/policies must meet the following parameters: 1. Minimum age: Minimum face amount: $250, Insurance company rating: "B+" or better by AM Best (IF NO AM BEST RATING, OTHER RATING AGENCIES ARE USED.) To proceed, complete the following: I. Insured Data section, II. Medical Condition section (use the qualifying worksheet on page three), and III. Policy Type section. Once completed, add up the points to determine the eligibility for the case based on the total points using the chart on the second page. I. INSURED DATA POINTS SECTION TOTAL 1. AGE A. UNDER 70 0 B C. OVER GENDER A. MALE 1 B. FEMALE 0 3. SMOKING A. SMOKER 1 B. NONSMOKER 0 I N S U R E D D A T A T O T A L II. MEDICAL CONDITION (SEE QUALIFYING WORKSHEET) POINTS SECTION TOTAL 1. HEALTHY PROBABLY A STANDARD RISK FOR LIFE INSURANCE MINOR MEDICAL CONDITION(S) OR UNDER GOOD CONTROL. (LIST A) 0 3. MODERATELY SIGNIFICANT MEDICAL CONDITION(S). (LIST B) 3 4. SIGNIFICANT MEDICAL CONDITION(S). (LIST C) 6 M E D I C A L C O N D I T I O N T O T A L In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller s death. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. A life settlement may affect the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. ValMark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. A life settlement transaction may require an extended period of time to complete. Due to complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. Securities offered through ValMark Securities Inc., Member FINRA, SIPC VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

17 THE LIFE SETTLEMENT FILTER III. POLICY TYPE POINTS SECTION TOTAL 1. WHOLE LIFE (SKIP TO SECTION IV) SECOND-TO-DIE UNIVERSAL LIFE (SKIP TO SECTION IV) 0 3. VARIABLE LIFE (SKIP TO SECTION IV) 0 4. TERM (SKIP TO SECTION V) 2 5. UNIVERSAL LIFE (SKIP TO SECTION IV) 4 P O L I C Y T Y P E T O T A L IV. WHOLE LIFE, SECOND-TO-DIE, VARIABLE LIFE, UNIVERSAL LIFE POINTS SECTION TOTAL 1. CASH SURRENDER VALUE A. OVER 25% OF FACE AMOUNT -4 B. BETWEEN 15% TO 25% OF FACE AMOUNT -2 C. LESS THAN 15% OF FACE AMOUNT 0 2. POLICY LOAN A. OVER 25% OF FACE AMOUNT -4 B. BETWEEN 15% TO 25% OF FACE AMOUNT -2 C. LESS THAN 15% OF FACE AMOUNT 0 3. ANNUAL PREMIUM A. OVER 5% OF FACE AMOUNT 0 B. BETWEEN 3% TO 5% OF FACE AMOUNT 1 C. LESS THAN 3% OF FACE AMOUNT 2 4. POLICY MATURITY A. AT AGE 95 0 B. AT AGE C. OVER AGE W H O L E L I F E, S E C O N D-TO- DIE, V A R I A B L E L I F E, U N I V E R S A L L I F E T O T A L V. TERM POINTS SECTION TOTAL 1. STATUS A. NOT CONVERTIBLE -2 B. CONVERTIBLE 2 2. ANNUAL PREMIUM A. OVER 5% OF FACE AMOUNT 0 B. BETWEEN 3% TO 5% OF FACE AMOUNT 1 C. LESS THAN 3% OF FACE AMOUNT 2 T E R M T O T A L *TOTAL POINTS FOR ALL SECTIONS LIKELIHOOD OF APPROVAL BASED ON TOTAL SCORE T O T A L P O I N T S E L I G I B I L I T Y VERY UNLIKELY UNLIKELY LIKELY MOST LIKELY *Disclaimer: a point total of 10 or more does not guarantee eligibility. This does not constitute an offer or promise to purchase any policy presented for purchase. The life settlement provider s ability to purchase a policy is based on numerous factors in addition to the insured s medical condition VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

18 THE LIFE SETTLEMENT FILTER PLEASE CIRCLE ANY EXISTING MEDICAL CONDITIONS L I S T A MINOR MEDICAL CONDITIONS OR UNDER GOOD CONTROL ARTHRITIS ASTHMA ARTIAL FIBRILLATION (PAROXYSMAL) CANCER > 10 YEARS ULCERS OSTEOPOROSIS CHOLESTEROL ELEVATION DEPRESSION DIABETES (TYPE II) HYPERTENSION PROSTATE ENLARGEMENT OVERWEIGHT L I S T B MODERATELY SIGNIFICANT MEDICAL CONDITIONS (OR MINOR CONDITIONS NOT WELL CONTROLLED) RHEUMATOID ARTHRITIS PARKINSONS DISEASE (MILD OR MODERATE) DATE DIAGNOSED: HEPATITIS C DATE DIAGNOSED: DIABETES (TYPE I OR POOR CONTROL) DATE DIAGNOSED: FALLS, DIFFICULTY WITH WALKING/BALANCE SLEEP APNEA CPAP USE: L I S T C SIGNIFICANT MEDICAL CONDITIONS HYPERTENSION (POOR CONTROL) AVERAGE BP READINGS: MEMORY LOSS / SHORT TERM (MILD OR MODERATE) WHEELCHAIR BOUND MULTIPLE SCLEROSIS (MODERATE) PACEMAKER DATE INSERTED: TRANSIENT ISCHEMIC ATTACK (TIA) DATE: ALZHEIMER S DISEASE/DEMENTIA (MODERATE OR SEVERE) DATE DIAGNOSED: CANCER (RECENT OR RECURRENCE) DATE: TYPE: DIAGNOSED: STAGE: GRADE: CIRRHOSIS CONGESTIVE HEART FAILURE CORONARY ARTERY DISEASE (STINT/ANGIO PLASTY) DATE: CORONARY BYPASS SURGERY DATE OF BYPASS: COPD / EMPHYSEMA CROHNS DISEASE STROKE DATE: MULTIPLE SCLEROSIS (PROGRESSIVE) HEART ATTACK DATE DIAGNOSED: LUPUS (SYSTEMIC) DATE: VALVE (REPAIR OR REPLACEMENT) DATE: PANCREATITIS (CHRONIC) DATE: PERIPHERAL VASCULAR DISEASE (WITH DEBILITATING SYMPTOMS) TRANSIENT ISCHEMIC ATTACKS (MULTIPLE) DATE(S): ANEURYSM (HEART, BRAIN, AORTA) DATE: DATE REPAIRED: KIDNEY DISEASE/FAILURE/DIALYSIS ULCERATIVE COLITIS PLEASE LIST ALL CURRENT MEDICATION AND DOSAGE(S): HAVE YOU USED TOBACCO IN ANY FORM WITHIN THE PAST 5 YEARS? IF YES, PLEASE LIST THE FORM AND DATE LAST USED. FORM: DATE LAST USED: PLEASE LIST ANY ADDITIONAL MEDICAL CONDITIONS: HEIGHT WEIGHT DATE OF BIRTH HAVE THERE BEEN ANY CARDIOVASCULAR DEATHS UNDER AGE 60 AMONG YOUR PARENTS OR SIBLINGS? IF YES, PLEASE PROVIDE DETAILS: HAS THERE BEEN ANY CANCER HISTORY (NOT JUST DEATHS) PRIOR TO AGE 60 AMONG YOUR PARENTS OR SIBLINGS? IF YES, PLEASE PROVIDE DETAILS: 201 VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

19 LIFE SETTLEMENTS LIFE SETTLEMENTS: 2013 MARKET REVIEW THE MARKET RECORD YEAR FOR LIFE SETTLEMENTS AT VALMARK Life Settlements as an alternative to lapsing or surrendering a life insurance policy continue to gain momentum and the market opportunities are significant. ValMark Life Settlement business area had one of their most successful years in the settlement market in VALUE CREATED FOR CLIENTS IN 2013 $11.4 MILLION AVERAGE SETTLEMENT AS A % OF CSV 430% PARAMETERS 7 QUALITIES TO LOOK FOR IN A VIABLE LIFE SETTLEMENT CANDIDATE In order to evaluate the marketability of a client s policy, it s helpful to understand the seven key parameters needed for a good life settlement: CRITERIA PARAMETERS 1 Age of Insured Life Expectancy 14 Years or Less 3 Health of Insured Decline in Health from Original Policy Issue 4 Net Death Benefit $250, Policy Type UL, SUL, VUL, Convertible Term 6 Premium 5% Or Less of Death Benefit 7 Cash Surrender Value 15% of Death Benefit or Less 7 SUCCESS INDICATORS 4 STATISTICAL INDICATORS OF A SUCCESSFUL LIFE SETTLEMENT As you review your insurance policies, consider the following four statistical averages that constituted successful life settlements at ValMark in INDICATOR VALMARK 2013 STATISTICAL AVERAGE 1 Average Death Benefit $2 - $5 Million 2 Average Life Expectancy 5-8 Years 3 Average Value Created for Client 4-6 X Cash Surrender Value 4 Average Gross Offer 20-25% of Death Benefit OUTLOOK AN OPTIMISTIC OUTLOOK FOR 2014 The latest research provided by Conning & Company reports an optimistic outlook for the life settlement industry. We believe there are several reasons for this optimism: The industry has returned to the healthy basics of focusing on simple organic, plain-vanilla life settlements versus exotic, high-risk strategies like premium finance and synthetic alternatives which hastened the industry s decline after the 2008 capital market meltdown. Investment capital has returned to the industry and new sources of capital, such as pension funds, are now entering the life settlement market. As capital streams into the market and buying competition increases, investors are now buying policies at a lower internal rate of return (IRR) of 14-18% versus chasing 20% + IRRs with higher risk, less competitive policies thus opening additional opportunities in this marketplace. (Internal rate of return is the average annual return earned through the life of an investment.) The detection and suppression of STOLI policies (Stranger Owned Life Insurance) have led to the enactment of life settlement legislation in 41 states, representing more than 90% of potential life settlement policies. Today, the life settlement market has far greater transparency and disclosures than the life insurance industry. CONTACT US Call your advisor today to discuss your specific case and evaluate the marketability of your policy. [email protected] (800) Each client s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value. In such cases, the client can always surrender their policy to the carrier if the coverage is no longer needed. This material is intended for informational purposes only and should not be construed as legal or tax advice, or investment recommendations. Consult a qualified attorney, tax adviser, investment professional or insurance agent about the issues discussed herein. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC

20 CASE STUDIES WIDOW USES LIFE SETTLEMENT TO PAY PREMIUMS ON OTHER POLICIES HELD BY TRUST PHYSICIAN SELLS PART OF TERM POLICY AND MAINTAINS A PORTION RETIRED EXECUTIVE SELLS VARIABLE POLICY FOR 30% OF FACE AFTER NO OFFERS LAST YEAR 2013 VALMARK SECURITIES, INC. ALL RIGHTS RESERVED NAVIGATING THE NEW WORLD OF LIFE SETTLEMENTS

21 A LIFE SETTLEMENT CASE STUDY WIDOW USES LIFE SETTLEMENT TO PAY PREMIUMS ON OTHER POLICIES HELD BY TRUST THE SITUATION Mary Snow*, an 89-year-old widow, has a sizable net worth, but it has diminished over the last several years. After meeting with her Financial Advisor, they determined that she needed additional liquidity to pay the premiums on her other policies held by the family trust. Mary wanted to assure that the inheritance planned for her family and charities would remain intact. One of the policies Mary owned was a $6 million Universal Life policy with a cash surrender value of approximately $93,000. Her life expectancy is estimated at between 43 and 67 months. THE OUTCOME ValMark worked with multiple providers to negotiate a settlement resulting in a total gross offer of $1,565,000 (Before commissions and Expenses) 26% of the policy s death benefit and 16 X the cash surrender value. SUMMARY POLICY TYPE UL DEATH BENEFIT $6,000,000 CASH SURRENDER VALUE $93,000 LIFE EXPECTANCY MONTHS LIFE SETTLEMENT GROSS OFFER $1,565,000 (26% of DB 16 X CSV) THE TAKEAWAY According to a recent GAO study, Life Settlements deliver more than 4X the surrender value to seniors. As the troubled U.S. economy has improved, so has the Life Settlement market. Providers have more institutional money available to bid on policies than they have had in the last several years. Consider a life settlement as an alternative to lapsing or surrendering your policy. CONTACT US For more information or to discuss potential cases, please contact Pamela Bancsi at (800) X3382. *Client name has been changed to protect confidentiality. Each client s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value. In such cases, the client can always surrender their policy to the carrier if the coverage is no longer needed. This materials is intended for informational purposes only and should not be construed as legal or tax advice or investment recommendations. Consult a qualified attorney, tax adviser, investment professional or insurance agent about the issues discussed herein. Securities offered through ValMark Securities, Inc. Member FINRA/SIPC. VALMARK SECURITIES LIFE SETTLEMENTS PAMELA BANCSI, JD, CFP [email protected]

22 Life Settlement Disclosure A LIFE SETTLEMENT CASE STUDY In a life settlement agreement, the current life insurance policy owner transfers the ownership and beneficiary designations to a third party, who receives the death proceeds at the passing of the insured. As a result, this buyer has a financial interest in the seller s death. A policy owner should consider the continued need for coverage, and, if the policy owner plans to replace the existing policy with another policy, the policy owner should consider the availability, adequacy and cost of comparable coverage. Policy owners considering the need for cash should consider other less costly alternatives. When an individual decides to sell their policy, he or she must provide complete access to his or her medical history, and other personal information, that may affect his or her life expectancy. This information is requested during the initial application for a life settlement. After the completion of the sale, there may be an ongoing obligation to disclose similar and additional information at a later date. Individuals should discuss the taxation of the proceeds received with their tax advisor. ValMark Securities considers a life settlement a security transaction. A life settlement may affect the insured s ability to obtain insurance in the future and the seller s eligibility for certain public assistance programs, such as Medicaid, and there may be tax consequences. ValMark and its registered representatives act as brokers on the transaction and may receive a fee from the purchaser. A life settlement transaction may require an extended period of time to complete. Due to complexity of the transaction, fees and costs incurred with the life settlement transaction may be substantially higher than other securities. Once the policy is transferred, the policy owner has no control over subsequent transfers. If you are an investor or a buyer of a life insurance policy then you should be aware that: Investment in a life settlement is highly speculative. Although a substantial profit may be realized, a substantial loss is also possible. The death benefit may never be paid. Additional funds may need to be invested to pay premiums if the insured lives substantially longer than expected. VALMARK SECURITIES LIFE SETTLEMENTS PAMELA BANCSI, JD, CFP [email protected]

23 A LIFE SETTLEMENT CASE STUDY PHYSICIAN SELLS PART OF TERM POLICY AND MAINTAINS A PORTION THE SITUATION Joe Campbell*, a 74-year-old physician, lost a substantial portion of the wealth he had accumulated over his career and was unable to maintain the lifestyle that he and his wife had become accustomed to. Dr. Campbell had two term insurance policies with a total death benefit of $5 million. One of the policies ($3 million) needed to be converted within the next 4 months. The other policy ($2 million) was not convertible. Dr. Campbell said he couldn t afford to continue paying for the policies. His life expectancy was estimated to be between seven and nine years. THE OUTCOME ValMark worked with multiple providers to negotiate settlement offers on both policies. Dr. Campbell decided to sell $2 million of the $3 million convertible term policy. As a result, he was able to pay the premiums on the remaining death benefit using the gross proceeds from the sale. Dr. Campbell was greatly relieved to know he could now afford to maintain some coverage for his wife s survivorship needs, while still being able to maintain a comfortable lifestyle. SUMMARY POLICY #1 POLICY #2 POLICY TYPE TERM** TERM DEATH BENEFIT $2,000,000 $2,000,000 OF $3,000,000 ANNUAL PREMIUMS $46,535 $92,000 LIFE SETTLEMENT GROSS OFFER* $174,300*** $475,000*** *Before commissions and expenses *Client name has been changed to protect confidentiality. ** Non-convertible term. Offer not taken *** The gross offer will be reduced by commissions and expenses related to the sale. Each client s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value. In such cases, the client can always surrender their policy to the carrier if the coverage is no longer needed. This material is intended for informational purposes only and should not be construed as legal or tax advice or investment recommendations. Consult a qualified attorney, tax advisor, investment professional or insurance agent about the issues discussed herein. Securities offered through ValMark Securities, Inc. Member FINRA/SIPC. THE TAKEAWAY Over the last nine years ValMark has been able to create over $104 million in gross life settlement proceeds for clients. Over this same time period the average life settlement at ValMark has delivered over 4X the surrender value to seniors. Providers have more institutional money available to bid on policies than they have had in the last several years, making this a favorable time to consider a life settlement as an alternative to lapsing or surrendering your policy. CONTACT US For more information or to discuss potential cases, please contact Pamela Bancsi at (800) X3382. VALMARK SECURITIES LIFE SETTLEMENTS PAMELA BANCSI, JD, CFP [email protected]

25 A LIFE SETTLEMENT CASE STUDY RETIRED EXECUTIVE SELLS VARIABLE POLICY FOR 30% OF FACE AFTER RECEIVING NO OFFERS LAST YEAR THE SITUATION Glenn Snyder*, an 83-year-old retired executive of a Fortune 1000 company, had accumulated a sizable net worth, but over the years, it had diminished in size. Glenn had a $3.75 million variable policy, but he was no longer able to afford to continue the policy over his life expectancy of 4-6 years. Because the policy had a cash surrender value of $124,000 with a loan balance of $258,000, Glenn had planned on lapsing the policy. WHAT A DIFFERENCE A YEAR CAN MAKE ValMark attempted to sell Glenn s policy a year ago and did not receive any offers. After a second attempt a year later, and after 13 rounds in auction, ValMark negotiated a gross offer of $1,125,000 (Before commissions and expenses) 30% of the face amount. SUMMARY POLICY TYPE VARIABLE DEATH BENEFIT $3,750,000 LOAN BALANCE $258,000 CASH SURRENDER VALUE $124,000 LIFE EXPECTANCY 4 6 YEARS LIFE SETTLEMENT OFFER $1,125,000 (30% OF FACE AMOUNT) THE TAKEAWAY As the U.S. economy has steadily improved, so has the Life Settlement market. Providers have more institutional money available to bid on policies than they have had in the last several years. Consider a life settlement as an alternative to lapsing or surrendering your policy. CONTACT US For more information or to discuss potential cases, please contact Pamela Bancsi at (800) X3382. *Client name has been changed to protect confidentiality. Each client s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value. In such cases, the client can always surrender their policy to the carrier if the coverage is no longer needed. This materials is intended for informational purposes only and should not be construed as legal or tax advice or investment recommendations. Consult a qualified attorney, tax adviser, investment professional or insurance agent about the issues discussed herein. Securities offered through ValMark Securities, Inc. Member FINRA/SIPC. VALMARK SECURITIES LIFE SETTLEMENTS PAMELA BANCSI, JD, CFP [email protected]