Life Insurance Policy Put Options Explained

A life insurance Policy Put Option, also known as a ("PPO") or "put", is something purchased by a life insurance policy owner guaranteeing them the right to sell the policy at a predetermined date and price.

If a policy owner is unsure they will need their policy in the future or contemplating the future sale of their policy, a Policy Put Option enables them to lock in an exit price for their life insurance asset and reduce market volatility risk.

A put is essentially insurance for a life insurance policy and gives the owner more options and flexibility for their insurance asset.

Policy owner has flexibility with a Put:

A Policy owner may:

  • Exercise the option and sell the policy to the put issuer for more than the premiums paid
  • Not exercise the option and keep the policy
  • Not exercise the option and sell the policy to whomever they choose as a life settlement

The “PPO” is a great option for the insured who wants the assurance, that if needs change; they have an exit strategy beyond canceling the policy or surrendering for cash surrender value.

Policy Put Option Mechanics:

  • Option exercise date must be more than 24 months after policy is issued
  • Put can be purchased anytime after policy is issued
  • Policies can not be or ever have been premium financed
  • Face Amounts between $500,000 and $10,000,000
  • Life expectancies between 24 and 180 months
  • Policy Owner pays ALL premiums
  • No Carrier restrictions associated with premium financing since owner is paying premiums
  • Agents don't share commission for written policies as with some premium finance programs
  • Owner retains 100% of death benefit unless option exercised
  • Insured has guarantee that they can recoup more than the premiums paid into the policy
  • Cost is 1.5% of face
  • Ease of transaction documents – no trust, trustee, trust protector, Collateral assignment, etc.

With a put, a policy owner has the best of both worlds. If the owner chooses to exercise the option they have the receive a sum greater than premiums paid. The Policy Put Option price will always be substantially higher than the amount invested in the policy.

Since there is no prearranged sale of the policy it eliminates many of the issues associated with STOLI programs that are fraught with a host of potentially troublesome issues, including, insurable interest, tax, securities, “wet ink” settlement, premium rebate, premium finance, and usury issues.

Please call (800) 539-8885 x 101 for more information.