When should corporations consider lifetime settlements?
Your business may own a life insurance policy that no longer plays its intended role, or one that is under-performing, or one that has become noncompetitive. Instead of surrendering these policies, businesses can now sell them for more than their cash surrender value as a Lifetime Settlement.
Corporate life insurance is usually tied to specific tax, financial, and risk strategies for a specific time frame. For example, a term policy may be purchased for a key executive. When that executive retires, the company either surrenders the policy or offers the client the opportunity to take over the coverage.
Before surrendering the policy, the corporation should consider more productive alternatives_sell the policy and receive the proceeds or offer the retiring executive the settlement as a retirement bonus.
When should businesses consider Lifetime Settlement?
- Buy/Sell funding
- Business is bankrupt
- Policy is poorly performing
- Purchasing a minority interest in a closely held business or limited partnership
- Facilitating the transfer of a business to the next generation
- Paying off debt
- Funding a deferred compensation program
- Buying back stock from a partner or a stockholder
Generally, any insured over the age of 65 who has experienced a change in health can qualify for a Lifetime Settlement. The minimum face amount is $250,000 and any type of policy qualifies.
Before selling a policy it is important that individuals consult their advisors and examine all options available to them.
The decision process begins with the right questions.
Investors should consult with their own professional advisor regarding the potential tax, estate, and legal considerations that may arise in connection with entering into a life settlements transaction. Proceeds from a life settlement transaction may be taxable under federal or state law to the extent the proceeds exceed the cost basis. The proceeds from a life settlement transaction may be subject to claims of creditors. The receipt of proceeds from a life settlement transaction may adversely impact eligibility for government benefits and entitlements. The amount received for the sale of the Policy may be impacted by the circumstances of the particular purchaser of the Policy, the insured’s life expectancy, future premiums, the death benefit, the terms of the Policy, and the current market for insurance policies, among other factors. The amount received for the sale of the Policy may be more or less than what others might receive for the sale of a similar policy. There may be high fees associated with the sell of a Life settlement.
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