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March 31, 2015 Article 1 min read

Many businesses are required to keep a meaningful amount of cash on their books, while some simply choose to do so on a consistent basis. This can be problematic, as yields on conventional cash and cash equivalent assets remain at extremely low levels in the current environment.

Opportunity exists in the life insurance market.

Business-owned life insurance designed to maximize the accumulation of cash can provide returns that materially exceed other options. For example, first-year returns can exceed what may be obtained in the current cash market by 3 percent or more. Over a four-year period and beyond, returns may exceed the cash market by 2 percent or more.

But isn’t life insurance an illiquid vehicle?

Most of the time the answer to that question is “yes.” Significant penalties may be assessed when accessing cash via the surrender of a life insurance policy. However, a small number of life insurance products do not assess surrender penalties. In those instances, a business can surrender the policy at any time and walk away with the amount of cash initially deposited plus earnings. 

What’s the catch?

 There isn’t one. However, not every business that applies will be approved. Businesses need to have a “future executive liability” on the books to qualify. Examples include:
  • A buy-sell agreement
  • Deferred compensation plan
  • ESOP repurchase liabilities
  • Future equity buyout commitments

If your business consistently maintains cash in excess of $1 million on the books, consider exploring this opportunity with life insurance specialists knowledgeable in this area. They can assess your situation, determine whether you’ll qualify, and materially increase your returns on cash.

Plante Moran Insurance Agency is a member of the FINRA. Securities are offered through ValMark Securities, Inc., an unaffiliated securities broker-dealer. Member FINRA and SIPC.