There are many reasons why a business might purchase a life insurance policy, but often the life insurance as an asset angle is overlooked when it is time to retire and sell the business. Whether it is for investment purposes, to minimize the costs associated with risk management or for the benefits of employees, these policies have their benefits for a particular business during its lifetime. But when business owners are ready to retire, these polices may no longer be needed. Because of this, these policies are often overlooked as an asset that has great value, and are simply allowed to lapse. Checking the fair market value for these policies on the secondary market can uncover a level of liquidity that can add a significant amount to the value of a business, even accelerating the sale of a company for a desirable price and on more favorable terms.
A good case example is the one shown below of a business owner retiring. He hired a Business Exit Planner to help him sell his business to a private equity firm. The business included a key person policy designed to protect the firm from financial loss due to the death of a key executive. This policy was not included in the valuation of the business, and the private equity firm buying the business had no interest in the policy. The Exit Planner therefore negotiated release of the policy to the seller:
- The business sold for $28 Million
- The 76-year-old seller retained the $10 Million entity-owned insurance policy
- He sold it in the secondary market for life insurance for a lump sum of $800,000
Visit www.ashargroup.com for more case studies regarding life settlements well as other pertinent information regarding all aspects of the Secondary Market.