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L i fe Insurance Settlement 101

SPONSORED BY THE LIFE INSURANCE SETTLEMENT ASSOCIATION

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Life Insurance Settlement 101

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SPONSORED BY THE LIFE INSURANCE SETTLEMENT ASSOCIATION

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GWG History

Chairman and President Paul Siegert conceptualized GWG Life Settlements, LLC (“GWG”) when the secondary market was quietly growing for individuals who wanted choices with their l i fe insurance policies. Life insurance has monetary value and can be bought and sold l ike any other asset. It is this insight that launched GWG and is the foundation of the company today.

In 2006, GWG received its init ial backing and the fol lowing year, began investing in l i fe insurance policies purchased in the secondary market.

Today, GWG continues to build its portfolio of l ife insurance policies and is dedicated to raising awareness of the secondary market to the general public.

GWG is headquartered on the 12th floor of the

U.S. Bank Plaza located in downtown Minneapolis, MN

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Founded in 1994, LISA represents over 85 member f irms including hundreds of professionals from l ife settlement brokers, l i fe settlement providers, institutional investors, l i fe settlement servicers, and other service providers.

Founded in 1994, LISA represents over 85 member firms including hundreds of professionals from life settlement brokers, life settlement providers, institutional investors, life settlement servicers, and other service providers.

Brokers Providers Investors Service Providers Others 3

LISA

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“Our goal is to advance the highest standards of conduct and practice for market participants and to promote education and awareness to consumers, investors, public officials and others.”

President and CEO, LISA

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1 . The sel ler receives a lump sum of cash.

2. Sale to a third party for higher than the cash surrender value.

3. Purchasing entity becomes new owner and beneficiary.

L ife Settlement

A Life Settlement is an option for an unneeded or underperforming l ife insurance policy.

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L ife Insurance Settlement 101

SPONSORED BY THE LIFE INSURANCE SETTLEMENT ASSOCIATION

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Industry History

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• BASIC PART OF THE FINANCIAL FABRIC OF MILLIONS OF AMERICANS

• THE END OF 2013 – Nearly 88% of Universal Life Insurance policies never result in payment of claim – 868 Life Insurance Companies – 146 Mil l ion Policies – $11 .2 Tri l l ion Face Value

Source: ACLI, 2013 Insurance Fact Book

L ife Insurance Industry

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“So far as reasonable safety permits, it is desirable to give to l ife policies the ordinary characteristics of property. . .

. . .To deny the right to sel l except to persons having such an interest (in the l ife of the insured, emphasis added) is to diminish appreciably the value of the contract in the owner ’s hands.”Justice Oliver Holmes

Grigsby v. Russel l (1911)

Life Settlement has its origin in a 1911 Supreme Court decision.

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VIATICALS

AIDS Epidemic Transit ion to Life Settlements

Signif icant Regulatory Expansion

Addressing Consumer Needs (i.e. Long Term Care)

LIFE SETTLEMENTS

MARKET MATURES

FINANCIAL/ESTATE PLANNING

1980 2000 2005 2013

Life SettlementIndustry Timeline

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Three independent research f irms have estimated the market of

l i fe insurance policies that could be subject to a l i fe settlement

to be $100-$160 Bill ion in face amount.

BERNSTEIN RESEARCH (2006) – $160 BILLION

CONNING RESEARCH (2012) – $136 BILLION AVE NET 2012-2021

BERGSTROM-HART (2012) – $102 BILLION

Market Size

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SINCE 2008, 32 OF THESE STATES HAVE

IMPLEMENTED NEW LAWS.

45 STATES NOW REGULATE LIFE SETTLEMENTS.

Regulation of Today’s Life Settlement Market

4532

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Over 90% of the U.S. population l ive in states with

comprehensive consumer protections afforded to

them under the various Life Settlement Acts

All states with l ife settlement regulations ban the sale of policies that have been in effect for less than two years.

Regulation of Today’s Life Settlement Market

90%2 Yrs

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Four consumer complaints involving l ife settlements over the past four years, and NONE in the past two years

Source: NAIC’s Consumer Information Source

Life Settlements are Highly Regulated

TRANSPARENCY

ACCOUNTABILITYPRIVACY

PROTECTIONS

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STATES CHOOSE TO ADOPT EITHER MODEL, ASPECTS OF EACH, OR REMAIN UNREGULATED.

National Conference of Insurance Legislators (NCOIL) is an organization of state legislators whose primary focus is insurance legislation and regulation.

National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials seeking to assist state insurance regulators in protecting consumers and help maintain the f inancial stabil ity of the insurance industry.

NCOIL & NAIC Model Acts

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LIFE SETTLEMENT LAWMay 2013

LIFE SETTLEMENT REGULATION

2 Year Waiting Period

4 Year Waiting Period

5 Year Waiting Period

Regulates Viaticals Only

Unregulated

WAITING PERIOD EXCEPTIONS*• Varies by state

• Chronic or Terminal Illness

• Spouse has passed

• Divorce

• Disability *Varies by state

*Arizona’s law becomes effective September 30, 2013**Massachusetts law becomes effective April 9, 2013

Regulation around the U.S.

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KENTUCKY, MAINE, OREGON AND WASHINGTON

CALIFORNIA AND NEW HAMPSHIRE

Consumer Notif ication by carrier required for lapse, surrender or accelerated death benefit request for policies meeting certain criteria.

Consumer Notif ication regarding tax consequences when making changes to existing policy status.

Required Consumer Notification of Life Settlement Option

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Situations Leading to a Life Settlement

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PROS

CONS

• Relief of premiums

• Influx of cash or continuation of a portion of the coverage

• Insurable capacity

• Impact on receiving aid (Medicaid)

• Proceeds can be subject to creditor ’s claims

• Tax implication

Implications of a Life Settlement

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LOOKING AT LIFE INSURANCE IN A NEW WAY

• Supplement Retirement Income

• End Expensive Premiums

• Fund Long-Term Care

• Recover Paid Premiums

• Retirement Planning

• Reinvest

Why sell your policy

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The policy owner purchased a $5M policy for estate planning while he owned his business.

After the family sold the business, the ful l amount of the insurance was no longer necessary,

the premiums were expensive, but some benefit was desired.

Insured Profile:

Policy Profile:

Transaction:

75 year-old MaleLife Expectancy 120 months (10 yrs)

Issued 2009$5,000,000 Death Benefit$150,000 Annual Premium

$1,000,000 Death Benefit Retained by Family$4,000,000 Death Benefit Sold to Buyer100% of Premiums Paid by Buyer

Case Study – Retained Benefit

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Our cl ient owned two survivorship policies insuring the cl ient and his spouse. Upon

restructuring of his business some years ago, those policies were transit ioned to a single $1

mil l ion policy insuring the cl ient for the benefit of his spouse uti l izing a 1035 exchange. After

the cl ient’s spouse passed away, the cl ient found no need to continue the policy. Since the

policy had zero surrender value, a l i fe settlement proved a more attractive option.

Insured Profile:

Policy Profile:

Transaction:

72 year-old MaleLife Expectancy 144 months (12 yrs)

Issued 2009$1,000,000 Death Benefit$0 Cash Surrender Value$34,000 Annual Premium

$150,000 Paid to Seller

Case Study – Estate Planning

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58 years ago, a business owner bought a Level Term 20 Policy on himself to cover the debt

of the business. 17 years later he sel ls the business to his son. In the interim, he has had 3

different signif icant health changing events. He real izes he has the opportunity to convert

his policy to Universal Life and sel l it in the secondary market for l i fe insurance.

Insured Profile:

Policy Profile:

Transaction:

75 year-old MaleLife Expectancy 96 months (8 yrs)

Issued 1997, Converted in 2014$1,000,000 Death Benefit$1,000 Cash Surrender Value$27,000 Annual Premium

$127,000 Paid to Seller

Case Study – Term Conversion

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L ife Insurance Settlement 101

SPONSORED BY THE LIFE INSURANCE SETTLEMENT ASSOCIATION

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The Life Settlement Process

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Application

Underwriting

Offer/Acceptance

Purchase and Sale

Agreement

Policy Ownership of Change

Funds Transfer

Life Settlement Processes

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Profile of a QualifyingInsured/Policy

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Age • Typical ly 70 years old and older

Health • Value based on insureds’ current health

Type • UL, Term, SUL-1 Insured, SUL–2 Insureds, VUL, WL • Guarantee, Index Carrier • Typical ly, A-rated or better

Profile of a QualifyingInsured & Policy

INSURED

POLICY

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BENEFIT TO YOU

• Supplement retirement income

• End expensive premiums

• Fund Long Term Care needs

• Recover paid premiums

• Reinvest

GWG SUPPORTS YOU

• Guidance

• Education

• Transparent

• Streamlined process

• Comprehensive website

• Informative video

• Virtual Meetings

SALES & MARKETING TOOLS

Why go direct with GWG

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Thank You Q & A