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Can a Business-Owned Life Insurance Policy Qualify for a Life Settlement?
By Saul L. Appel, CLU®, ChFC®
A business-owned life insurance policy may qualify for a life settlement when the coverage is no longer needed or has become too expensive. Common examples include policies purchased for buy-sell agreements, key-person protection, executive benefits, or loan protection.
Business needs change. An owner may retire, a key employee may leave, a loan may be repaid, or a buy-sell arrangement may be revised. Instead of surrendering or lapsing the policy, the company can investigate whether an institutional buyer will pay more than the cash surrender value.
The business will generally need to document who has authority to sell the policy. Buyers may request corporate resolutions, ownership records, policy statements, an in-force illustration, and information about any collateral assignment or lender interest. The insured must authorize the release of medical records.
The company should evaluate taxes, accounting treatment, employee-consent rules, and any obligations created when the policy was issued. Legal and tax advisers should review the proposed transaction before closing.
A life settlement is not appropriate if the business still needs the coverage and cannot replace it on suitable terms. The decision should compare the cash offer with the ongoing protection, future premiums, and current business purpose.
This article is general education, not legal, accounting, or tax advice.
To explore whether a business-owned policy has market value, visit Policy-Cash.com.
Saul L. Appel, CLU®, ChFC® | President, Appel Financial, Inc. | 50+ years experience