A corporate-owned life insurance policy is generally purchased to protect a business in the event a key partner/employee of that business passes away. Among other benefits, the insurance policy helps to bridge the gaps the death of that individual causes and ensures the company continues to function. But what happens to that policy with the individual retires?
Life insurance may have considerable value that can be uncovered by an independent appraisal. Like any other asset – real estate, jewelry, automobiles, artwork – value depends on what the market will bear. Life insurance value on the secondary market can vary depending on the conditions present at the time of sale. To avoid your business clients making uninformed decisions, paying unnecessary premium payments, or missing lucrative planning opportunities, it is important to understand the fair market value of a corporate-owned policy first.
The primary factors in determining the value of a life insurance policy are the policy details and the estimated life expectancy of the insured.
Policy details include:
Life expectancy is estimated based on:
When selecting an appraiser to value the life insurance policy, it’s important to choose an independent resource – one that does not have any interest in purchasing the policy but who also has the knowledge, qualifications, and historical comps to provide an accurate analysis that allows your clients to make an informed decision and ensures their best interests are served.
There are many planning scenarios where a life insurance valuation would benefit your clients. One reason is that the appraisal may uncover significant life settlement value. In some cases, exchanging the policy for cash now makes the most sense. In the case of this retiring business owner, the life settlement was more than the value of the business itself.
Ashar Group is a nationally licensed life settlement firm representing 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, manage 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.