Can a business life insurance policy provide revenue?

Chad Bice | August 2nd, 2010

 

Does your business own a life insurance policy on a key employee? If the policy is no longer needed, it may be tempting to let the policy lapse, but that could be a costly mistake. Instead, convert the policy into revenue through a life settlement.

A life settlement occurs when the business sells the life insurance policy to a third party for an amount greater than the cash surrender value. The new owner makes the premium payments and receives the proceeds from the death benefit.

Your business might consider the sale of a term, universal life or whole life policy to a settlement company if the policy is no longer needed or wanted due to changes in personnel, life circumstances such as a divorce or death, changes in succession planning or other financial circumstances. Selling the policy can generate as much as hundreds of thousands of dollars or even more for the business.

The amount of money the policy can command depends on factors including the age and medical condition of the employee, type of policy, amount of death benefit, rating of the issuing insurance company and the amount of premium needed to maintain the policy. If the policy has a cash surrender value, the amount of the sale should be greater than the cash surrender value.

If your company owns life insurance policies on executives or key employees that may no longer be needed, be sure to discuss life settlement options with your advisor.

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