Cashing Out Your Hidden Business Assets

Life Settlement Basics

Although life settlement viability is determined on a case-by-case basis, the basic requirements are: the insured is 65 years or older, the policy’s death benefit is $250,000 or more, and the policy has been in force at least two years.

Unlike applying for life insurance, no medical exams or extensive interviews are required. The underwriting process involves only paperwork, such as your life insurance policy and in-force ledger as well as your medical records, which are necessary to verify the specifics of your insurance and health. Furthermore, there are no appraisal, application or processing fees.

In 2006, corporate money managers invested $10 billion to $15 billion in life settlements—more money than in the previous seven years combined—because they were increasingly interested in purchasing pools of life policies to diversify their portfolios into alternative investments.

Fortunately, the life settlement industry has replaced a monopsony (an anti-competitive market situation in which a seller is permitted to sell to only one buyer) with a free market alternative that lets companies compete to acquire the rights and obligations of dispensable business life policies

When you consider that the average cash surrender value of a life insurance policy is only 4 percent of the face value while the average life settlement payout is 20 to 25 percent, a life settlement can be an effective tool for liberating substantial liquidity hidden within a dormant business asset.

Caveats

Although selling obsolete business life policies in the secondary life insurance market can be profitable, navigating the labyrinth life settlement marketplace can be challenging. The nascent life settlement industry, in general, is deficient due to diligence and transparency, as well as knowledge of and services responsive to the unique needs of retiring entrepreneurs in the process of selling their companies.

Analyzing the expendability of your business life policies, coordinating the sale of your obsolete policies with the sale of your company, safeguarding your privacy and securing the highest quality institutional offer demands specialized advisory skills in exit planning, business life insurance and life settlements. Working with an independent advisor who has expertise in these disciplines is the key to a successful, efficient transaction.

Every day, retiring business owners, frustrated by inadequate purchasing offers, unknowingly discard valuable capital assets by cash surrendering and lapsing their expendable business life policies. Selling these hidden business assets can be the answer to easily getting your deal done.

Rhona Sacks is the founder and president of Legal Life Settlements (LegalLifeSettlements.com), a mergers and acquisitions advisory company.

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