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Katt & Company is a national fee-only life insurance advising firm. The June 2002 Forbes magazine, and a July 16, 2003 Wall Street Journal article, name Peter Katt as one of only four nationally recognized advisors. The Forbes article states that, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us. Premium Financing Fiasco "A recent premium financing client is on the hook for $949,462. Betty is 84 and in good health for a smoker. If she dies within seven years this $4,000,000 financed life insurance policy will provide a good financial return for her heirs. If not, the delayed repayment of the debt could nearly consume her estate. The family had no idea what they had gotten into and the agent did not understand it either. The family is literally in tears over the bad options they face." The promised life settlement fall back position has failed to produce an offer much higher then the current cash value. Betty and her family have several years of agonizing moments deciding what to do. Table 1 shows the value of this program upon Betty's death. (The internal rate of return [IRR] is derived from what return (net death benefit) Betty is getting for loan payments. The IRR is 12% at 90, 2% at 91 and turns negative age 92.) Table 2 shows the cost to terminate the policy if
the loan interest costs become too great with Betty remaining alive. I
had to prepare these estimates because the firm that sold this wouldn't
provide it and the agent didn't understand what to do.
If premium financing is continued. the return could be large, but the cost of Betty not dying in time (sic) is probably unacceptable. If this program is continued it turns negative at age 92, which is Betty's life expectancy. If Betty lives to 92 and this policy is terminated, the cost is estimated to be $1,803,655 (see Table 2). The current $949,462 cost to terminate this program
is really the delayed cost of providing life insurance coverage for the
past six years that has had a net zero cost to date. Unfortunately Betty
and her family had no realization of these enormous costs involved with
what is essentially a loan for the life insurance policy. What they wanted
was life insurance for nothing (good luck) and the agents wanted to cash
a huge commission check.
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