life insurance for your business

Keyman Coverage

How term insurance can protect your business

Term insurance can protect a business, its’ owners, and management in a variety of ways.

Keyman coverage with life insurance is generally a life insurance policy that is owned by a business entity, which gives that business the life insurance proceeds upon the passing of a keyman in the business, for the purposes which include: giving the business time to find and hire a replacement, keeping creditors satisfied that the business has enough operating capital in a time when there may be grave concerns about the business’ future and the debt the business may be carrying, and pay-off any accrued compensation owed to the keyman’s estate. 

The policy design of this type of coverage is more complex than an individual owning his own coverage for his family’s protection. An experienced life insurance professional should be sought to make sure the policy structure achieves the desired goal for the need. There may also be issues around taxation and tax deductability of premiums or proceeds. 

life insurance for executives

Buy-Sell Arrangements

How to use term insurance to protect your business in buy-sell arrangements

A buy-sell arrangement is a formal contract between parties that have, or could have, an interest in a business. These arrangements are generally designed by attorneys to suit the specific needs and goals of the interested parties. Many times, should a provision of the arrangement be triggered by the death of an owner, partner, shareholder, or otherwise, the life insurance death benefit on the individual who passed away, is used to buy-out that person’s interest in the business.

These arrangements can be fairly complex when it comes to designing the life insurance coverage and “funding” the arrangement with life insurance proceeds, as there are several ways the coverage can be structured, depending on a variety of factors, including how many interested parties there are involved, the funding structure of the policies, the beneficiary designations, the need to be able to change insureds as the interested parties change over the years, and so on.

life insurance as executive bonus

Executive Bonus/Golden Handcuffs

Whole life insurance can be a great executive bonus to help your your business attract and retain top talent

Using a life insurance policy as an executive bonus arrangement and/or as “Golden Handcuffs” is a great way to have a have a discriminant method of offering a bonus to select individuals .  The purpose is of course to attract and retain top talent in your business.  By offering a life insurance policy as part of their employment contract, you provide a valuable benefit that can be contractually restricted over a certain period of time — a time period you define in the arrangement agreement.   

A built-in, self-vesting schedule of the available cash-value within the policy which should increase over time makes the life insurance policy more valuable over time and harder for the executive to walk away from.   Any other timed restrictions that were agreed upon at the time of the arrangement contribute to making this a great enticement tool — thus being like “Golden Handcuffs” — keeping them personally financially invested in your business.   

Getting Roth IRA style benefits from a whole life insurance policy

Generally speaking, this type of arrangement can also be very attractive because the possibility of the cash-value growth being tax-deferred, and the eventual tax-free use of the cash-value within the life insurance policy.  This creates a scenario  that mimics the tax advantages of a ROTH IRA but without any of the income, earnings, or contribution limitations. 

Life insurance policy design is critical

For these type of strategies, permanent cash-value insurance is required, and the type of policies, and the policy design are crucial. As with any financial strategy using life insurance, an experienced life insurance professional should be sought to make sure the policy structure achieves the desired goal.

protect income

Income Replacement Coverage

How would your family survive if you could not work and earn an income?

Income replacement coverage is just what the term implies, covering the future income, for those who are counting on it, family, business partners, creditors, etc. 

However, the income replacement calculation can be tricky because of the need to calculate project into the future and make some assumptions about future projected earnings, inflation, changing financial obligations and other items. 

Due to these variables, one could be looking at an increasing need, a decreasing need, or a static need. This must only be calculated with the help of an experienced, knowledgeable professional, as this calculation is too important to guess about.

how to protect your home

Mortgage Protection

Protect your most valuable asset - your home - with life insurance

Mortgage protection coverage is a life insurance policy that covers the balance of a mortgage or loan over the period of that loan.  A mortgage protection life insurance plan can optimize the coverage so that only the approximate coverage that is needed at any given time interval, is being paid for. 

In other words, since the principal balance a mortgage decreases over time, an experienced knowledgeable agent can design coverage for you that declines approximately along with the mortgage balance, so you are not paying for excessive coverage.

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Final Expense/Funeral Coverage

Final expense life insurance policies cover the cost of funeral expenses - and more

Final expense, can be utilized for funeral expenses, hospital/medicare and care facility bills that may otherwise become the obligation of other relatives, estate liquidity, (gives executors money to pay taxes, insurance and other expenses on real estate and other property, while settling the estate of deceased.) as well as other costs associated with the insured person’s passing. 

Heavily-marketed final expense policies may have hidden costs

Final expense insurance is best and most properly addressed with a permanent life insurance policy.  While there are companies that issue small policies through the mail, you must be very careful and understand that many of these policies are age banded, and when the insured reaches the next age band, their premium will increase if they wish to maintain the same amount of coverage.  

Some final-expense life insurance policies are "graded"

Some of these policies may be also be graded.   Grading means that there will be a period of time when the insurance isn’t in effect, and all the deceased’s beneficiaries will get back are the premiums paid and interest. 

What’s also important to know is that since final expense is meant to be available for the entire life of the insured, it is very important to speak with an experienced, knowledgeable professional, even if a policy with a small death benefit is needed or desired.

No Roth, No Problem

Having too much income will prevent you from using a Roth IRA (Roth) to save after-tax money, and grow that money, tax-deferred, as well as use that growth, tax-free. Also, the type of income you have may prevent you from using a Roth, as contributions must be made with earned income, not income derived from dividends and other passive sources.  On top of all of this, the people who are most likely to want to maximize Roth IRA contributions, and may even use strategies like the “back-door Roth”, are likely able, and want to, make substantially higher contributions than allowed by law anyway.  For these folks, who want to enjoy tax-free growth and tax-free use of gains, well into the future, municipal bonds, don’t fill the bill; instead, the only mechanism left is the implementation of a properly designed cash-value life insurance plan. 

Cash-value life insurance has several tax advantages that can mimic a Roth IRA, except without income or contribution “limits” imposed on a Roth IRA (such as income phase-out, earned income requirement, and annual contribution limits). But selecting the correct type of permanent cash-value policy must be done with care for a variety of reasons. Firstly, there is not one type of cash-value insurance that is better than another type, each general type has a unique value proposition.  Also, the individual contract terms, carrier formation, carrier ratings, dividend history, underwriting standards, reserves, optional features and benefits, and other factors of each issuing insurance company’s contract, may play a part in your decision to use one type of insurance over another, with one particular carrier over another.  Said another way, the same type of insurance still differs from one carrier to another!

Complexities of cash-value life insurance should be explained by an experienced, licensed professional

Using permanent cash-value insurance for this purpose should be secondary, the primary purpose of the policy is to provide life insurance and it offers a panoply of benefits above and beyond tax benefits to the cash-value. 

A full understanding of:

  • cash-value crediting method
  • dividends
  • loan interest
  • direct or non-direct recognition
  • general account surpluses/obligations
  • carrier ratings
  • performance history

…along with several other items, need to be understood for all products being considered by the policy purchaser; also reviewing illustrations that can generally show the guaranteed and non-guaranteed aspects/projections of a certain type of policy. That being the case, it is most prudent to speak to an experienced, knowledgeable professional since the choice made, will have to be lived with for years into the future.

Filling the hole in a portfolio

Using permanent cash-value insurance can fill a significant hole in many people’s portfolio.  Typically, brokers advise clients on investments based on the client’s time horizon for needing to use the money, and risk tolerance.  Younger investors who want to be aggressive in their investing, may not have any “safe” money sitting on the sidelines, growing at a slower, but more stable pace, and this might prevent them from taking advantage of buying opportunities when the market has a correction; but the only significant money they have, might be tied up in securities that have lost value during the correction.  But as investors get older, many are advised to put an increasing percentage of their portfolio into bonds, or other fixed income instruments, but the issue here is that an investor would still have to liquidate securities to have the cash to take advantage of buying opportunities

Another issue is that sometimes an investment doesn’t allow for liquidating only certain segments, like just the bond portion, of the investment.  This might limit the down-side of the portfolio, but it can also inhibit the upside.  But certain types of cash-value life insurance can serve as the conservative aspect of a well-rounded portfolio, by leveraging the long-term stability typically  found in a highly rated insurance company’s general account.  Since access to the cash-value can be done without taxation, or penalty, it gives the policy holder liquidity that is difficult to achieve with regular investments, and when the tax load is considered, it makes the tax free use of an insurance policies cash-value, all the more attractive.