Different Ways Life Insurance Settlements can Help a Business

For the most part, seniors use life settlements to help cover immediate costs, such as long-term care that often comes with costs most people cannot anticipate.

It is easy to see how a settlement like this could be helpful for a person in this kind of situation or in a similar one, but life settlements can be used for other things like business.

The following are some examples of how a life settlement can help business people.

Settlements During Transitions

A lot of businesses carry key person insurance policies. If valuable individuals go missing for any reason, the absence won’t hurt the business too harshly. Life does not always go as planned, which happens within the business world as well.

One thing that employers may not see coming is a key person retiring early. It is obvious that there is no need to keep a life insurance policy open for a person who decides to leave the company. The money the company was spending on this person can go back into the company’s pockets.

Sure, the company can simply cash out the insurance, but this means the company is going to take a loss since it already paid a substantial amount into the insurance. This is the reason it might be a good idea to go ahead and consider a settlement for the policy instead, which could return more money to the company as long as the policy purchased qualifies for such a transaction. It might be a good idea to run this by a professional settlement expert.

Position of the Key Person is Reduced

One reason a business purchases life insurance policies on some people is because these individuals are vital. The positions they hold are pretty important, but these positions can sometimes change.

Time moves forward, and companies continue to grow, meaning that some positions can actually become less important. It is a harsh reality that a good business person has to accept, even if these individuals have given the company years of honest dedication.

At this point, selling the life insurance policy makes perfect sense because this person’s absence will simply not affect the company so harshly. A life insurance can sometimes be useful for family-owned businesses where the income of one family member really makes a difference, which means that his or her loss could devastate the company.

Now, if this family-owned business expands, then a business might end up hiring individuals who can transition into the position other family members currently hold without much trouble. The company is capable of surviving a tragedy without resorting to a life insurance policy. The business can sell it, make money, and end up saving money that could be used for any other company-driven endeavors.

Key Person Relinquishes Stock in Company

Sometimes, the reason a person is important in a business is not because he or she holds an important position but rather he or she owns a considerable amount of shares. The thing about a share is a person does not have to keep it for life, so someone could sell his or her shares. Then, the business no longer has to worry about insuring this person with a life insurance policy.

Again, it is in the company’s best interest to sell the policy through a life settlement because it might end up recouping more than they might have otherwise.

Most growing companies do not want a shareholder to own a significant amount of stock in the business. The company could sell their insurance policy and use the money to buy the person out. It is a very smart way to gain more freedom and also stop paying life insurance premiums all the time.

These are just some of the ways a business can use the life insurance policies they own to their advantage. Granted, the life insurance policy does have to meet certain qualifications, so it is important to talk to a settlement expert to make sure that any policy purchased by the company is worth the investment if things should change down the line.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.