A PUBLICATION OF
Cypress Ridge Solutions and Insurance Services, Inc.
607 N. 1st Street • San Jose, CA 95112 • 408.358.7794
The Lifetime Settlement--A Business Planning Alternative
By Marc Haberman
Let’s assume when you started your company several years ago, you had the foresight to
purchase Key Employee Life Insurance on the three founders and one other key executive.
What would you do if one of the founders just announced he is leaving to pursue other
interests and wants to exercise his buy-out clause? What could you do with that Key
Employee life insurance policy? Do you hire a hit man to collect on the policy? Although this
strategy might provide the cash to buy out the exiting founder’s interest or provide the
money to hire a replacement, your financial gain and “good fortune” would be short-lived!
Fortunately there is a much better and definitely legal solution.
There are times when a business may own a life insurance policy that no longer plays its
intended role, or it may no longer be competitive. The role of corporate life insurance is
typically tied to specific financial, tax or risk issues. If those issues are no longer evident,
the company will often surrender the policy for its cash value or, in the case of term
insurance, simply let it lapse.
There is a more financially lucrative alternative—the lifetime settlement. A lifetime
settlement involves the sale of the life insurance policy to a third party, generally a
settlement funding company. The settlement funding company becomes the owner and
beneficiary of the policy. The amount of money offered for the policy will be less than the
face amount of the policy but often significantly more than the cash surrender value offered
by the insurance company.
For individuals, a lifetime settlement may also be considered as their financial planning
needs may change.
A few examples:
• A corporation owned a $15,000,000 Term Life policy on a 65 year old executive. The
company received a cash settlement of $1,078,000.
• A company owned a Key Employee policy on a 63 year old male for $1,000,000
Universal Life policy with a cash surrender value of $48,000. He received a cash
settlement of $72,000.
• An 80 year old female owned a $5,000,000 Universal Life policy with a cash
surrender value of $108,604. She received an offer of $1,000,000.
A lifetime settlement can be a valuable financial decision applied in a variety of business and
personal situations. It can enable a company to utilize cash from a company-owned policy in
many situations. It also provides an individual policyholder access to cash from their life
insurance policy if the policy is no longer needed.
Give us a call for a no-cost evaluation of your situation before you allow any life insurance
policy to lapse, or surrender a policy for its surrender value. Also, as a business, if you
don’t have Key Employee insurance and want to consider your options, please call. It may
be the best decision you make today to protect your business assets and your family in the
future. Marc Haberman 408.294.3431 or firstname.lastname@example.org.