In the world of business, key employees or key men play pivotal roles in a company’s success. These individuals possess specialized skills, knowledge, and experience that are critical to the company’s operations and financial stability. To mitigate the potential financial loss stemming from the departure of a key man, businesses often take out key man insurance policies. However, when a key man nears retirement, the company faces a unique challenge: how to manage the key man policy. This article explores how businesses can use life settlements to address key man policies when the insured is retiring.

Key Man Insurance: A Strategic Asset

Key man insurance, also known as key person insurance, is a life insurance policy taken out by a business on the life of a key employee, such as a founder, CEO, or key executive. The company pays the premiums and is the policy’s beneficiary. In the event of the key employee’s death, the policy pays out a death benefit to the company, helping to offset the financial impact of their loss.

Key Man Policies and Retirement

When the insured key man is approaching retirement, businesses often find themselves at a crossroads. The key man policy, which once provided financial protection in the event of death, may now seem less relevant. The insured individual may have other financial plans for their retirement, and the company may wish to free up the capital tied to the policy. This is where life settlements come into play.

Life Settlements for Key Man Policies

A life settlement is a financial transaction where the owner of a life insurance policy sells the policy to a third party, known as a life settlement provider, in exchange for a lump sum cash payment. This option allows businesses to leverage the value of the key man policy while the insured is still alive and retiring.

Benefits of Using a Life Settlement for a Key Man Policy in Retirement:

  1. Immediate Liquidity:

    A life settlement provides the company with immediate cash liquidity, which can be reinvested in the business or used for other strategic purposes.

  2. Retirement Planning:

    By facilitating the retirement plans of the key man, the company demonstrates its commitment to the individual’s well-being and financial security in retirement.

  3. Cost Savings:

    Once the key man retires, the company is relieved of the responsibility of paying ongoing premiums for the policy, resulting in cost savings.

  4. Valuable Asset Optimization:

    The policy, which was initially designed for risk mitigation, can be transformed into a valuable financial asset through a life settlement.

  5. Flexible Use of Proceeds:

    The lump sum received from the life settlement can be used to fund retirement benefits, contribute to a retirement account, or reinvest in the business, depending on the company’s strategic goals.

  6. Financial Security:

    The life settlement ensures the key man has the financial resources needed for a comfortable and secure retirement.

Navigating the Life Settlement Process

To utilize a life settlement for a key man policy when the insured is retiring, businesses should follow a strategic process:

  1. Assessment: Evaluate the company’s current financial needs, the key man’s retirement plans, and the policy’s cash surrender value.
  2. Consultation: Engage with a financial advisor, legal experts, and life settlement professionals to assess the viability of a life settlement for the policy.
  3. Valuation: Determine the fair market value of the policy by soliciting offers from multiple reputable life settlement providers.
  4. Negotiation: Review offers and negotiate terms with the selected life settlement provider.
  5. Closing: Finalize the life settlement agreement, and upon completion, the company will receive the lump sum payment.


When a key man is retiring, businesses have the opportunity to strategically manage key man policies through life settlements. This approach provides immediate liquidity, supports retirement planning, reduces ongoing costs, and optimizes the value of the policy. By navigating the life settlement process effectively, companies can ensure a smooth transition for both the retiring key man and the business, securing financial well-being and strategic flexibility for the future.