Life insurance assets associated with business owners or key stakeholders can present profitable opportunities for securing capital that can affect business planning.
A life insurance policy is often one of the client’s most valuable assets. And the cash obtained from its sale through a life settlement transaction can help clients maintain financial independence for themselves and their families. For clients who own or have a significant stake in a business, a life insurance policy can also be a critical asset for ensuring their company’s future. Here are two cases that illustrate how a life settlement transaction can impact a client’s business planning.
A business advisor suggested that her client - a business owner on the verge of retirement - determine if the business-owned term policy had any secondary market value. The advisor made this recommendation because the prospective buyer of the client’s business had no interest in keeping the term policy on the seller and making ongoing premium payments. The advisor’s knowledge of this fact represented a beneficial opportunity for both the prospective seller and buyer.
Aware of the potential life settlement value, the business advisor negotiated the transfer of ownership of the business-owned policy to the retiring business owner without affecting the value obtained from the sale of the business. The attorney representing the prospective buyer was unaware of the potential for a term policy to contain secondary market value, so the buyer was agreeable to the transfer.
A key-person or “key-man” policy is a life insurance policy that is taken out on an executive whose death would have a significant financial impact on the company and its operations. The purpose allows the business time to replace the individual or develop a new process.
But what happens when an executive with a key-man policy is going to retire? Many companies lapse the policy, not wanting to continue paying premiums on a retiring individual's policy. However, term policies can be appraised and sold for fair market value. The policy stays in-force on the insured, and the company receives the life settlement payment eliminating future premium obligations. A life settlement may be a more advantageous alternative that gives the company greater liquidity without obtaining a loan, moving stocks, or disturbing other assets.
The decision to value a life insurance policy asset has become integral in the overall business planning process. After all, how can recommendations be made without exploring the value of an asset that could be worth more to a client than their entire equity portfolio?
Ashar Group is a nationally licensed life settlement firm that acts as a fiduciary to protect the best interests of policy owners by creating a competitive policy auction to deliver the best value to the seller. Ashar Group does not sell life insurance, management assets, or purchase policies. We are an independent resource for fiduciary advisors and their clients specializing in life insurance valuation for planning purposes. Contact us today to see if a life settlement is right for your client.
This 3-minute questionnaire will help us give insight into whether a policy has life settlement value. If the option is chosen, our proprietary auction platform ensures the best offer for the policy.
Business was sold, and the policy was no longer needed
Business owner was able to receive additional value above and beyond the sale of the company.
Restaurant owner in his early 70s
Businesses were severely affected by the COVID-19 pandemic.
Surrendering policy and interested in receiving more money
Adult children unable to pay premiums to maintain the policy.