Posts filed under 'business life insurance'
I certainly don’t want to be seen as jumping on the pro excessive pay band wagon for executives, CEO’s and Presidents of companies, but there are some company financial health issues that can and should be addressed in the life insurance arena.
It happens daily in America. Whether it is a small partnership or a large company with a multitude of shareholders, an untimely death can send a company into a tailspin and into a place where, with proper planning, they didn’t have to go.
If the President of a company or a major shareholder of stock passes away, a company needs to be poised to be able to buy back that stock. Buying the stock back ensures that the company will keep remain stable. Failure to buy the stock back can leave wide openings for power struggles, or if enough shares of stock are at risk, a company takeover.
With life insurance and a stock repurchase plan in place, there is no question as to any loss of control of the company. The company absorbs those outstanding shares and the family of the deceased is paid a fair market value for the stock.
This can be even more critical in a small partnership where most state’s laws would allow a surviving spouse or member of the family to actually move in and become part of the business if they weren’t bought out. If a proper buy/sell arrangement is in place, fully funded by life insurance, the surviving partner has the ability to buy out the deceased partner’s share of the business.
Life insurance is an attractive way to enhance a bonus package for members of a company board of directors. Generally this is an unpaid position where the person or their survivor might get some amount of stock for their years of service. In a best case scenario if the company were to carry life insurance on the board member they could use the proceeds from that to buy the shares of stock back from the surviving spouse.
Bottom line. The death of the wrong person at the wrong time in a company can create a real crisis. A funded life insurance plan can be the salvation of the company and the family of the person who passed away.
October 22nd, 2009
Whether as an executive or CEO of a large business, or as owner of one of the small businesses that are the backbone of this country, women are increasingly in charge of companies and increasingly needing to consider life insurance as a way to protect that for their families or their employees.
Business life insurance has always played a key role in business continuation. We’ll discuss three ways that women can ensure that the value of their business passes in the right direction in the case of an untimely death.
In a partnership, a buy/sell policy is the best way to ensure that both partners get what they want in the event of a premature death. If a partner dies, their portion of the company is owned by their estate. This leaves two options for the surviving partner. Either buy the deceased partner’s portion from the family, or consider that the family may either sell that part of the business to a third party, or become a part of the business.
In a buy/sell arrangement both partners (or however many there are) carry life insurance, in an amount equal to their portion of the business. If the unfortunate happens, the money is instantly available to buy out the partner’s family. The alternatives outlined above, third party sale or an unknown family member entering the business, are much to unpredictable not to insure against.
In the second scenario, a sole proprietorship, the business in many cases has virtually no value to the businesswoman or her family. The value in many businesses is the income. In this case, life insurance is all about loss of income. You have a job that just happens to be owned by you. If the business doesn’t have any inherent sales value, insure to replace income. Even if the company does have some sales value, rather than the loss of income driving a fire sale mentality, life insurance can calm the waters until the best value is attained.
Third is something we don’t see often, but life insurance can make the difference in making this scenario work for your employees. There are often situations where employees, or at least a key employee could continue a business on. In the absence of a family that wants to continue the business and in a situation where a person wants to see the business survive them, a policy to buy out the family and turn over ownership of the company to the employee or employees works very well.
Bottom line. Women are more of a force in business all the time at every level. Whether simply protecting loss of income or ensuring business continuation, business life insurance is the flexible tool for the job.
June 16th, 2009
That’s an easy one. If you can think of a person in the company, whether that is you, your partner, a long time key employee or board members that make the whole thing work, whose death would cause a financial stumbling block, there is a need for business life insurance.
In addition, if your company runs any significant amount of ongoing debt, business life insurance on the principals of the company is a must. Business life insurance is there for many of the same purposes we all carry personal life insurance, the difference being that if not handled properly it’s not just your family that can be affected, but the family of your partner(s) and possibly the very viability of the company and the people it employs.
Just a brief overview of a few policies that business owners should consider. Buy/sell agreements are a real must when it comes to businesses where two or more people own the business. Funded by life insurance on each of the owners, it allows the company, upon the death of an owner. to buy out a family’s interest in the business. In most states if an agreement is not in place, the surviving owner either has to come up with the money to buy the family out or, if the family wishes, they can replace the deceased partner with someone of their choosing. From a practical standpoint the surviving partner really doesn’t want to be in a position of having to accept a new partner whether they want to or not. Their options are left open through a fully funded buy/sell agreement.
Key person insurance is often overlooked, but is vital to company continuity upon the death of a key person. That person could be a plant manager, a business manager or an office manager. It is that these people have become so key to the everyday running of the company that creates the need for a key person life insurance policy. With this type of policy, the company becomes the beneficiary and can use the money to overcome the obstacles that pop up due to their loss. It could be that these are the people who kept the customer base loyal. It could be that this was the person that helped the employee base be so productive.
An influx of cash upon the death of a key person in your company can provide incentive money to hire the right replacement person in a quicker time frame. It might provide smaller per employee bonuses to keep the team together and working hard during the transition. There really are no restrictions on the creative use of the money. A business owner might even use the money to fund a retreat for key customers to get their input and the qualities a replacement needs to bring to the table.
If the death of a partner will have an impact on the productivity of the company, the owners should consider carrying life insurance to pay off any debt the company has. The extra slack created by having the debt paid off could be just what it takes to ensure the company isn’t strapped during the adjustment period.
Bottom line. The death of an owner or key employee in a company can wreak havoc with the very ability of the company to survive. A well considered business life insurance policy can ensure a company will have the cash flow to deal with any number of challenges.
May 18th, 2009
I have written several posts on the subject of beneficiary rights if a claim happens during the incontestability period. This is a little talked about subject that can truly cause problems for those who are engaged, are life partners, have used life insurance as collateral on a personal loan or for some who own business life insurance such to fund a buy/sell agreement.
Just to review, during the two year incontestability period the company will routinely investigate the claim including acquiring relevant medical records. The problem occurs when the beneficiary doesn’t have legal standing to sign an authorization to release those records to the insurance company. Unless a family member steps forward to help the beneficiary is likely to have to go to court in order to obtain a limited medical power of attorney. This takes time and money.
In the case that started the dialogue on this subject, the death occurred last August. The family wouldn’t cooperate with the insured’s fiancee because of some greed issues. She got the court ordered medical power of attorney in February and the claim was settled and paid today. It’s a good day when claims are paid, but agents and insureds need to both be aware of this pitfall so those good days aren’t unnecessarily delayed.
Bottom line. There are those who aren’t married yet as in engaged. There are those who probably won’t get married, life partners. There are those who can’t get married, gay couples. There are those in business who can be at the mercy of a family. All are reasonably chosen beneficiaries and the life insurance companies don’t have a problem cutting the check, but during that first two years there has to be a plan in place for acquisition of records.
March 27th, 2009
It’s been a fascinating couple of years. I will sum it up by saying that we have helped a lot of people get life insurance who never thought they could. And what better way to celebrate the information we’ve shared and the victories we’ve had than with a shared meal, a key word salad.
Diabetes has been at the forefront of our life insurance efforts from the very start. We’ve made huge headway in finding aggressive underwriting for type 1 diabetes and type 2 diabetes. I think our strong point has been in education. There are a lot more people out there today that know what their A1c is than when we started.
I’ve been very clear about where some of the problems lie in our industry. The AARP/New York Life collaboration, on what can only be described as a sick crime against older folks, continue to offer the worst term insurance and whole life insurance in the business. They are simply not the advocate they claim to be.
I’ve stepped on some toes along the way. Selectquote and Zander Life insurance have taken exception to some of my observations. Being a Dave Ramsey fan and I think, ultimately, a reasonable person, I did apologize to Zander. In spite of Selectquote’s berating commentary, I still stand by my assertion that they are biased in what companies they offer (otherwise they wouldn’t be so easy to beat) and I still believe that Suze Orman should go back to waitressing. As to their assertion that I only use Selectquote and Suze Orman for search engine optimization, well, I don’t, even though they think I do. If I didn’t think there was better service elsewhere and more honest advertising, I would never have mentioned Selectquote.
We’ve touched on scuba diving and Prudential being a leader in great rates for recreational divers. Pru also stomps the competition on prostate cancer, sleep apnea and mild anxiety issues. While providing direction on those issues we have also been able to provide direction for those involved in skydiving and foreign travel to places where kidnap and ransom insurance is more than just a casual thought.
We’ve stayed abreast of the economic meltdown and recession that have whacked us all and tried to help people understand how best to handle their life insurance needs in these tight times.
We’ve held lengthy discussions about obesity and the impact it can have on other health issues such as hypertension or high blood pressure, cholesterol, heart disease, heart attack, stroke and cancer. We’ve discussed the risk and benefits of gastric bypass surgery as a means to avoid the life threatening side effects of being over weight.
Probably our biggest response has been from those suffering from depression and bipolar disorder. We reached a group of people that have truly been black balled in the insurance industry and we’ve been able to find some level headed underwriting and hit some major home runs for those who have the name tag but lead normal lives.
We have bared the facts behind the black eye of all black eyes in the insurance industry, the non guaranteed whole life, universal life and variable universal life policies and explained the alternatives in the permanent insurance market. There is nothing that provides greater value and peace of mind than a rock solid guarantee.
We’ve had frank discussions about business life insurance such as key man insurance and buy/sell life insurance. We did a whole series on women and life insurance. We’ve provided direction and information to private pilots that they aren’t getting anywhere else. We’ve talked about the guts of the policy when it comes to the two year suicide and incontestability clause and the accelerated death benefit and the beneficiary rights and the beneficiary issues for those who aren’t in a legal relationship such as a gay couple or an unmarried couple.
Bottom line. And the list goes on and on. We’ve tried to leave no stone unturned and no question unanswered in our quest to find life insurance for those whose mortality risk might be more challenging than average. As an independent agent it has been gratifying to have so many ways to help those who have been mishandled by the wrong agent or the wrong company. As we continue to reach out my prayer is that all who need help find it, and that more agents consider serving those who are harder to help.
March 18th, 2009
In our current economic meltdown there are a lot of people out there trying to say that the government or big business are trying to run our country. What this country really runs on is small businesses and what really makes those businesses work is the owners or the managers.
This is a country made of small businesses and generally speaking, all of those that have employees, have managers. As long as I’m being general, I think it’s safe to say that a good manager is a very valuable asset. I believe, generally speaking, that most business owners would agree that insuring the valuable assets of their business is a prudent idea. And logically, the loss of a valuable asset can cause a substantial financial loss to the if the appropriate business life insurance isn’t in place.
This is exactly why small business owners insure themselves and exactly why key man insurance was created for managers or other individuals that companies are dependent upon. The way key man insurance works is that a value is determined that represents the loss to a business if the key person should die. It can be done several ways, but for the sake of this example we will say that the life insurance policy, a return of premium term insurance, is two times the annual salary of the manager. We pay our manager $125,000, so we insure his life for $250,000.
We have determined, in this case, that it would take about a year to hire, train and bring up to speed a new manager. Because our manager is so integral in the success of the business, we anticipate that there may be some turmoil caused by his untimely death. There might be customers lost, production slow downs, employees lost, etc. We might also need to anticipate paying a hiring bonus so we can hire as high up the food chain as possible to minimize the turmoil. Anyway, suffice it to say, key man insurance is definitely justified.
Now to why I decided to buy a return of premium term policy to fund our key man policy. Let’s say that our manager has 15 year to go to retirement when we purchase the policy and, being the good employee that he is, he doesn’t die but keeps on doing a stellar job right up to his retirement day.
During those 15 years we have insured a valuable asset of the business to protect the business. And yes, you got to write that off.Our manager has made us tons of money and saved us hundreds of tons of headaches, because that’s what good managers do. So now it’s time to give him a bonus.
Our return of premium term policy has cost the company $4000 a year for the last 15 years and now, because our manager is still alive and we bought the right kind of life insurance policy, the company gets back all of the premium paid in. Well, that just freed up $60,000 that we can hand to our retiring manager at his going away party. A bonus for a job well done.
Bottom line. Things happen that we never expected as business owners. The scenario above is a win/win either way.
March 6th, 2009
Ah, the almost age old question, term versus whole life. What is the right thing to do? Forgive me for being more than just a little opinionated on this subject, but personally I think that is a right for anyone that is on the right side of an argument.
Whole life insurance, a cash value building permanent policy is one of the earliest versions of life insurance. Whole life insurance is sold as a savings plan with life insurance, a retirement plan with life insurance, a loan source with life insurance and I’m sure by some, a fountain of youth with life insurance. Whole life insurance is generally sold by life insurance agents that believe that whole life is not just the best way to buy life insurance, but the only way to buy life insurance.
What they don’t tell you, primarily because it would end their career, is that whole life insurance is a horrible savings plan, a worse retirement plan, a silly place to borrow money from and unless it is in fact a fountain of youth, it is grossly overpriced. The cash value that does build in a whole policy doesn’t magically appear but rather dribbles in as the leftovers from your huge premium payments after the internal and company charges. You get the honor of earning a little bit of interest on the little bit that is left. A good example is a policy my Dad had with New York Life. His parents started it in 1935. It had a $1000 death benefit. Since 1935 the premium payments paid have totaled $1387 and the cash value in the policy is now $723. Now there’s some bang for your buck!
Term insurance on the other hand is essentially pure insurance. There is no cash value. No bells. No whistles. Just a guaranteed level premium for a certain period of time (the term) and a guaranteed level death benefit if you die while the policy is in force. Depending on your age you can get guaranteed terms ranging from 10 years up to 30 years.
Term insurance is a small fraction of the price of whole life insurance and really, from a practical standpoint, more appropriate. The truth is that most, and I am thinking that is 95% or more, of life insurance needs are not permanent needs. We carry life insurance because we have a spouse and children who are dependent on our income. Children, theoretically, reach a point where they are no longer dependent on us. That’s a need that goes away. Term insurance! Replacing an income for our spouse is a need that should resolve itself at retirement or sooner if our assets outgrow the need for income replacement. That’s a need that goes away. Term insurance.
Although I’m surprised it was never offered along with all the other magic mortgages of previous years, there are no life time mortgages, so life insurance for mortgage protection is a need that goes away. Term insurance. Business partners that carry business life insurance as a buy/sell life insurance agreement aren’t likely to still be business partners to age 100 or beyond. That coupled with the fact that most businesses and the associated value to a deceased partner’s family change over time makes the need or at least the size of the need a temporary situation. That’s a need that changes or goes away. Term insurance.
Bottom line. When there is a product that is available (term insurance) that meets 95% or more of all life insurance needs and you have people selling whole life insurance and they claim that it is the best thing for all needs, a lot of people are left wondering why. It’s called compensation. An agent makes a lot more money selling whole life than term. Yes, I’m saying that whole life is a product that is primarily sold for the benefit of the agent.
January 31st, 2009
For those of us who own and operate small businesses, we pour all we have into feeding our family, paying our employees and hopefully leaving something of value behind to our heirs. For many that entrepreneurial drive is cut short by a premature death and without adequate life insurance, those that would have benefited from all of your work, simply won’t.
Small business has become the backbone of the American economy and the primary employer in our country. Too many small business owners, often because it’s never brought to their attention, never look into protecting their investment by guaranteeing income replacement for their family, or ensuring the continuation of the business through a buy/sell life insurance policy.
For most of us, owning and operating a business is a daunting task. We’re in business usually because we are good at something. Very often starting a business leads us to a sudden realization that what got us there isn’t going to keep us going unless we learn how to run a business and how to protect it as we grow. I know that hiring my first employee and becoming a corporation and putting life insurance in place that wasn’t just about my wife and I, were all quantum leaps.
So, just a quick check list:
1. What would happen to your family’s income stream if you died?
2. What would happen to your business and your employees if you died?
3. How would any business debt be paid if you died?
4. If you are in a partnership, how will your portion of the business be handled if you die? Would a family member step in and take over your position or would you want your family bought out?
5. Do you have a business continuation plan in place or do the doors shut when you die?
Bottom line. We work hard to build our businesses and there is no reason that the business or the legacy of what we’ve done shouldn’t outlive us.
July 2nd, 2008
I swear, where a year ago I was thinking New York would probably miss this century also, they have now rocked the life insurance world by approving return of premium term insurance for sale.
Return of premium has been available in the rest of the country for years, but today ING Reliastar the first ever ROP products in New York. Until this release New Yorkers were left only to wonder what it would be like to use term insurance for protection, and having outlived it, get a full refund.
Forbes ran article almost three years ago extolling the virtues of ROP (every where but New York and Utah). Attached is that article.
forbes-return-of-premium.pdf
While there isn’t any doubt that the younger you are the more attractive the product becomes, it can still fill needs that no other products can. For instance, a key man business insurance policy. You can use a return of premium policy as an insurance/bonus program. If the key employee dies, the money is there to help the company through a transition phase. If the key employee lives, the company can bonus the tax free premium refund as a retirement gift.
Bottom line. Let’s all welcome New York to the rest of the country. Past due, but welcome. Question now is, will Utah ever jump on board. Don’t hold your breath.
February 21st, 2008
Small businesses, the backbone of American employment, often run by the slimmest of margins. I’m not talking about profit margins. I’m referring to the owner or one of the owners being just a heart attack away from leaving their family with the business or a partner trying to figure out how to buy the deceased partner’s family out of the business.
In either case, business insurance in the form of key man or buy/sell life insurance can save the company and your family the strain of trying to figure out what to do with their inherited new career.
There are so many unprotected partnerships out there that it boggles the mind. How would you like to have your partner replaced by one of his family members tomorrow? If you can’t afford to buy out the partner’s portion of the business, the family has a right to do what they need to do to replace the lost income. You could end up with someone “helping” you run the business that doesn’t have the slightest clue what to do.
If you are a sole proprietor, carrying life insurance to replace the lost income and carry the business until it is closed down, sold or turned over is critical. In the absence of that protection, your family will not only lose the income, but likely lose the business along with it. Rare is the small business that can be successfully taken over by your wife or another family member.
Bottom line. Ensuring the succession of your business with life insurance makes great sense and in most cases the cost is very low. Compared to the alternative it is always low.
February 14th, 2008
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