About five years ago I was working with the CEO of a mid size company on a succession plan for his business using life insurance. I remember this case well because of two things. First, it was unique in that the owner and CEO wanted to use this life insurance to allow his employees to essentially inherit the company. The life insurance proceeds would accomplish two things. 1. Buy the family out of the business and 2. Pay off any debt and create a $250,000 cash reserve for the company. The vice president of the company could then move the company onward on solid ground.
The second thing that stood out about this CEO and his life insurance plan, and more specifically his succession plan, was that from the first time we talked the plan was mired down in planning by his accountant, financial advisors and the vice president. It was a complicated plan and deserved all the time and study that was put into it, but he was insistent on not putting life insurance in force until the planning was done. I gently urged from the beginning that the life insurance part of this plan was something that could, and really should, be put in place sooner rather than waiting for the planning process simply because he was in good health and that could change.
His accountant chimed in with his opinion that putting life insurance in force was putting the cart before the horse because at that juncture, even though they had a ball park idea of the amount, he didn’t want the CEO to buy too much or too little just to get a jump on things. I explained that too much could be taken care of by reducing the amount of in force life insurance once the final figure was arrived at, and too little was easier to make up than the whole amount if some health change made it harder to get life insurance at the rates he could pay at that time.
Ultimately I was set aside to just check in with them occasionally to see how the “plan” was progressing. This went on for almost two years and I occasionally reminded them of my opinion that life insurance in force was valuable to their efforts. It was on my last call that I was told he had suffered a massive stroke, which by itself made him uninsurable at that time. He passed away about a month later and all the planning was thrown overboard because it was unfunded. The company was sold at fire sale prices with the proceeds going to the widow, about 1/4th of what she would have received from life insurance.
Bottom line. I don’t now and have never pushed for a life insurance sale, but I have advised against putting off purchasing life insurance for a need that exists today. There was no reason to believe that this person wouldn’t qualify for insurance once everyone decided it was time to move ahead, but that is exactly what happened and it ended in the end of a business and the end of a succession plan for his business that was uniquely generous. If you are putting off buying life insurance until all your ducks or stars are in a row, consider just for a minute how health, just like death, aren’t predictable. If you have questions please call or email me directly. My name is Ed Hinerman. Let’s talk.