Buy Sell Agreements and Life Settlements
Buy Sell Agreements and Key Person insurance are often fantastic life settlement opportunities, and I'll explain why.
Many law firms and business will take out life insurance policies on the owners or partners of the company, known as a buy-sell agreement, to protect the future fallout of what can happen when one of these owners dies. Without a life insurance policy on a partner or owner of the company, if that person dies their heirs are entitled to resume their position in the company and retains their voting ability on critical company decisions. There are plenty of Hollywood and real life examples of when and how this can go wrong when the derelict son, or even ex spouse falls into this role and ruins the success of the company.
The best way to avoid this complicated entanglement is with a buy-sell agreement, which is a legal buyout that occurs when the owner passes away. The life insurance company pays the heirs the death benefit, receiving their fair share of the company value, making them both whole while the firm or company continues on without any future involvement from the family. The family gets what's theirs, and the firm doesn't have to cover the settlement out of pocket, just the premiums on the policy.
The reason these policies make for great life settlement cases is that not only are these policies often fairly large prompting a potentially large settlement value, but policies also need to be updated from time to time based on the current value of the company. In other words, it's possible the 3 equal partners of a law firm or the 3 owners of a company each take out $4MM life insurance policies to cover their equal share of a $12MM valued company, but in time the company grows and the company valuation is now $30MM, which means the 3 owners should update their life insurance to $10MM each instead of $4MM. That leaves them with the $4MM policy that they don't need anymore and should look into a life settlement.
There's also other scenarios where the company is sold, or dissolved, and there are large life insurance policies that still exist. The owners could choose to retain these policies for themselves, however the premiums may be enormous and unaffordable for an individual to cover. Instead of letting them lapse, see how much you can get in a settlement; they may be worth millions of dollars!
If the insured is age 70 or older and has one of these policies, our job is to search the market to find the highest offer for your policy. To get started give us a call at 213.784.1481, or fill out a free appraisal form with no obligation.