Life settlements are frequently viewed, primarily, as an option for personal life insurance and estate planning policies that are no longer wanted, needed or affordable. However, business-owned policies or personally owned business purpose policies can also make excellent life settlement candidates, yet these policies are often overlooked.
(Related: A viable life settlement and replacement strategy)
When a business owner leaves, whether due to retirement, disability or the sale or liquidation of the business, advisors should be alert to the possibility of a life settlement. Quite often, the business will own or be paying for any number of policies on the life of the departing owner.
Life insurance policies are purchased by businesses for a variety of reasons: to fund a buy-out of the owner’s interest under a stock redemption arrangement, for key person purposes to offset the financial loss that would have been sustained by the business had this person died prematurely, or for creditor protection purposes to secure loans that may have been made by the business. In some instances, policies are not owned by the business itself but rather by co-owners of the business to fund a cross-purchase arrangement.
This blog was originally published on ThinkAdvisor.com
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