Hi Will the lump sum amount also have to be higher than the cover they could get from another Whole Life policy from a different company? I mean the equivalent to an open market value. Would this be a valid point?
Hi - I'm not sure that I quite understand what you are meaning here by an 'open market value' or 'the cover they could get from another whole life policy from a different company'. If you mean the death benefit they could purchase from another company using the lump sum received from Co A, then the lump sum would be smaller than this death benefit (you seem to have it the other way around) due to discounting and any future premiums due. Also, it isn't really any concern of Company A what the p/h does with the lump sum once they receive it: whether they choose to use it to purchase alternative death cover or spend it on something else. Co A just needs to make sure that the amount offered is sufficiently attractive (compared with what other parties might offer as a lump sum for purchasing the rights to the policy) and fair (in terms of the current benefits that the p/h is giving up). If you mean how might the lump sum compare with the premium(s) needed to purchase equivalent cover with another provider, then similar arguments apply. The scenario involves giving the p/h an opportunity to cash in their policy by a means other than surrendering it. So presumably they no longer wish to have life insurance cover. If they did, they could just surrender the existing policy and take out a new one with an alternative provider - that wouldn't have to involve Co A. (Of course they could go through Co A to achieve this if Co A pays higher than the surrender value - but the terms on which the p/h could buy a new policy with the lump sum, if that's what they chose to do, is still not of direct relevance to Co A.) Apologies if I have misunderstood what you are meaning.
