Nestled in the picturesque city of Bend, Oregon, where the mountains are as grand as the entrepreneurial dreams, a trend is emerging — entrepreneurs are not just growing businesses; they’re turning the sale of those businesses. The decision to sell a company is not merely a transaction but a complex process that involves careful consideration of financial implications and future planning. These visionaries navigate the wild landscape of entrepreneurship, overcoming challenges with a blend of grit, determination, and a lot of coffee — Bend runs on coffee.
Like any savvy entrepreneur, they recognize the importance of planning for the unexpected. In the realm of financial risk management, they typically take a strategic step by securing a Key Man life insurance policy. This policy was designed to protect the business in the event of his untimely demise — a prudent move that demonstrated their commitment to ensuring the continuity and stability of the company.
Imagine a scenario where a seasoned entrepreneur, after years of hard work and dedication, decides to sell their thriving company. While the focus is understandably on the successful business transaction, an often-overlooked asset comes into play — the Key Man life insurance policy. Key Man insurance, also known as key person insurance, is a type of life insurance policy taken out by a business on the life of a crucial employee or owner. The purpose is to provide financial protection to the business in the event of the key person’s untimely demise. The policy payout is typically used to cover expenses related to finding a replacement, compensating for lost profits, and maintaining the stability of the business during the transitional period.
The Shift in Ownership:
When a business owner decides to sell their company, the dynamics change, and so does the need for a Key Man life insurance policy. In the case of our hypothetical entrepreneur, let’s call him John, he found himself in a position where he no longer needed the policy after successfully selling his business. What do most policyholders do with their policies when they no longer want or need? You guessed it. They surrender the policy or just let it lapse, walking away with the often-negligible cash value or nothing if it was a term policy! Instead of doing that and potentially losing out on its full value, John was referred to our practice here in Bend after hearing there is an alternative avenue — selling it on the open market through a Life Settlement.
Life Settlements Demystified:
A Life Settlement is a financial transaction where the owner of a life insurance policy sells it to a third party for a lump sum cash payment. This transaction allows the policyholder to receive a payout greater than the surrender value but less than the death benefit. The buyer, often an institutional investor, takes over the premium payments and becomes the beneficiary, receiving the death benefit when the insured person dies.
The Unexpected Windfall:
For John, the decision to explore a Life Settlement was a game-changer. Instead of surrendering the policy for a modest sum, he received an unexpected cash infusion from the sale. This payout provided him with additional financial security and also highlighted the often underestimated value of life insurance policies in the hands of the right buyer. It offered John an alternative and lucrative avenue to monetize an asset that would have otherwise been dormant.
Conclusion
The story of John and his strategic move to sell his Key Man life insurance policy through a Life Settlement serves as a testament to the untapped value hidden within the intricacies of business ownership. As more entrepreneurs become aware of the potential windfall from such transactions, the landscape of business exit strategies is likely to shift. The sale of life insurance policies, once perceived as a mere safety net, is now emerging as a strategic financial move providing business owners with unexpected cash, offering them financial flexibility in their post-business endeavors.
Would you like to learn more about how you could possibly profit from a life insurance policy you may no longer want or need? Get a complimentary copy of my recently released book; In The Know — Turning Your Unneeded Life Insurance Policy Into Serious Cash by contacting Emma@RosellWealthManagement.com.
David Rosell is the president of Rosell Wealth Management in Bend. RosellWealthManagement.com. He is the author of three books. Find David’s books at local bookstores, Amazon, Audible as well as Redmond Airport. Investment advisory services offered through Valmark Advisers, Inc. an SEC Registered Investment Advisor Securities offered through Valmark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. (800) 765-5201. Rosell Wealth Management is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc. Valmark Securities supervises all life settlements like a security transaction and its’ registered representatives act as brokers on the transaction and may receive a fee from the purchaser. Once a policy is transferred, the policy owner has no control over subsequent transfers and may be required to disclosure additional information later. If a continued need for coverage exists, the policy owner should consider the availability, adequacy and cost of the comparable coverage. A life settlement transaction may require an extended period to complete and result in higher costs and fees due to their complexity. Policy owners considering the need for cash should consider other less costly alternatives. A life settlement may affect the insured’s ability to obtain insurance in the future and the seller’s eligibility for certain public assistance programs. When an individual decides to sell their policy, they must provide complete access to their medical history, and other personal information. Client name has been changed to protect confidentiality. The gross offer will be reduced by commissions and expenses related to the sale. Each client’s experience varies, and there is no guarantee that a life settlement will generate an offer greater than the current cash surrender value.
*‘Non-client unpaid testimonial’
