Life insurance is ubiquitous in executive compensation. Life insurance policies are commonly used as funding vehicles for a wide variety of compensation arrangements, including nonqualified deferred compensation, bonus plans, death benefit plans, split-dollar life insurance arrangements, and even directed gifts to charity.

While life insurance often is a great way to fund executive compensation, life insurance policies can become unneeded when compensation arrangements change. The departure of an executive, the restructuring of a pay package, or changes in tax laws can render a policy obsolete.

A life settlement can turn an unwanted policy into a liquid asset by selling it to a third-party investor for an immediate cash payment. A life settlement typically generates several times the cash value of a policy because it allows the owner to capture some of the actuarial value of the policy, rather than just the value of its cash account. Best of all, there is no upfront cost to retain a life settlement broker to seek offers for a policy--life settlement brokers are compensated through a commission paid by the purchaser.

Almost any type of life insurance is eligible for a life settlement. The key limitation is that the insured life must be at least age 56 (and preferably 65 or older). Health problems faced by the insured may increase the settlement offer, but health problems are not required for a settlement.

Life settlements may also be an attractive option for businesses and executives that have split-dollar life insurance arrangements. After the departure or retirement of an executive, split-dollar arrangements often result in the retention of the policy by an executive. Frequently, the executive would prefer to have immediate cash, rather than a future death benefit. A life settlement can be used in these circumstances to transform the policy into a liquid asset—often far more effectively than through loans, withdrawals, or surrender.

Life settlements are also an important tool to “unwind” split-dollar arrangements (or other life insurance funded compensation arrangements) that have gone wrong. A arrangement may perform poorly due to unexpectedly low policy returns or a participant who lives longer than anticipated. When faced with the unexpected premium payments or withering cash value, a life settlement can be a profitable way out.

To discuss how a life settlement can help your executive compensation arrangement, please call Open Life Settlements at 866.877.4054. We will be happy to discuss your policy options and the life settlement process.