Life insurance assets associated with business owners or key stakeholders can present profitable opportunities for securing capital that can affect business planning. This article presents illustrative cases and resources for fiduciaries seeking a secondary market valuation.

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 aging 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.

Extract the Business Term Policy from the Sale of a Business

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. As an aside, it’s important to note that life insurance is not included on a business’ balance sheet; business valuation reports do not recognize it. The advisor’s knowledge of this fact represented a beneficial opportunity for both the prospective seller and buyer. 

Aware of 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.

Key-Person Insurance Policy

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 or surrender the policy back to the carrier for the cash surrender value. However, they 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, while no longer needing to make premium payments. A life settlement may be a more advantageous alternative that gives the company greater liquidity without obtaining a loan or issuing and selling more stock. 

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?

A qualified life settlement broker, like Ashar Group, can pre-screen policies both medically and financially. By determining the quality and value of policies before taking them to market, pre-screening saves both time and money. This approach also strengthens advisor-client relationships and avoids entering into a lengthy process that may not deliver the hoped-for results.

Ashar Group serves as an independent resource to the financial planning community by providing expertise in life insurance appraisals, life settlement transaction services, and longevity analytics for advanced planning applications. We believe that life settlement decisions made by consumers are best served when they are represented by their own advisor or planning team. We invite you to contact us today to learn how we can be part of the process of determining what makes sense for your client’s situation.