Prior to the existence of the secondary market for life insurance, many retiring business executives who owned key man insurance ended up leaving substantial sums of money on the table when they retired or sold their businesses.

That no longer has to be the case.

Life settlements have become a smart and profitable option for retired business owners and executives who want to leverage the monetary value of obsolete key man insurance policies.

As retiring business owners and aging company executives plan their exit strategy or prepare to sell their businesses, one of the most important decisions they will make involves the disposition of key man life insurance policies.

Prudent business owners typically purchase a life insurance policy on the owner(s) or key employee(s) as part of their long-term business planning. The company pays the premiums and is designated as the beneficiary of the policy.

Key man insurance is important to the future stability of a company because the death of a key person can often throw the company into bankruptcy. The purpose of key man insurance is to help the company survive the unexpected loss of the person who may be the mastermind behind the company’s product or service. The insurance payout is often used to handle routine expenses until a replacement is found for the key person, or the money is used for other purposes, such as to pay off debts or provide monetary distributions to company investors. In some cases, the insurance proceeds are used by the surviving partner in the business to buy out the shares from the deceased partner’s share of the business.

But what happens when the business founder or key executive decides to retire and the policy is no longer needed?  Should you allow the policy to lapse or surrender it back to the carrier for pennies on the dollar? Or should you continue paying costly premiums that are draining the cash assets from your estate?

Read this real-life case example involving a retired business owner who sold his $10 million COLI key man policy for $600,000.



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