What is Key-Person Life Insurance and How Can It Help Ensure My Business Thrives In Challenging Times

It’s no secret that the majority of business owners hold a considerable percentage of their net worth within the value of their business.  The business’s ability to succeed not only impacts the owner, but their dependents as well. With so much riding on the continued success of your business, have you considered how its profitability will be impacted when a key employee unexpectedly passes away?

While we would like to believe our company’s success is greater than the product of one employee; a careful audit of success-factors will inevitability point to a small handful of employees directly responsible for its overall profitability. Without this employee, processes fail, the customer experience deteriorates, and new customer acquisitions dramatically lag.  

Key-person life insurance enables the business to hedge this risk at a relatively low cost as compared to the lost revenue, time and productivity resulting from the loss of this key corporate asset. By insuring the life of this top-performer, the business is able to:

·      Stay afloat while a suitable replacement is found and properly trained.  

·      Receive an infusion of cash to make up for the lost revenue traditionally generated via this employee.

·      Ensure short-term financial obligations are capable of being met during this period of transition.

Families insure their primary wage earner to properly address how they will maintain lifestyle and meet financial obligations for years to come after this individual passes. Key person life insurance affords business owners the same protection.

For more information, or to schedule a complimentary consultation, please contact Long Lake Planning at 215.309.3839.

Make Financial Resolutions The One You Keep This Year

Before we’re able to plan ahead for how 2016 will be different, let’s first evaluate what took place in 2015.  What changed? Did your family welcome a new child? Did you experience the joy of marriage? New job? New home? Retirement? Divorce? Taking inventory of the previous year and understanding how those changes impact you, your business and your loved ones, are the guiding force behind properly planning for the year ahead. New year’s resolutions come and go too easily. The new faces you’re seeing at the gym in January will probably be gone by Valentine’s Day. While many resolutions are terminated entirely too early, if nothing else, let this be the year you get your financial home in good order.

Savings: What happens if you or spouse looses their job tomorrow? Do you currently have immediate access to the cash necessary to get your family through the next 6 months with no new income coming in?

Life Insurance: When was the last time you reviewed your existing life insurance coverage? Any time needs and goals change, it is important that your life insurance mirror that change. A new child, spouse, home, or significant change in income are all factors that should spark a review to ensure your loved one’s financial future is properly protected.  

Retirement Savings: A 401k & IRA are great tools, but not without limitations. If your current level of income precludes your participation in a Roth IRA, life insurance can help you create tax-free retirement income without the restrictions of traditional retirement planning vehicles. 

How Can A Life Settlement Unlock Value From My Unwanted Life Insurance?

Over 80% of life insurance policies do not result in a claim. Find out how a life settlement can help unlock hidden value from unwanted policies.

What is a life settlement? A life settlement is the sale of an existing life insurance policy for an amount greater than the carrier would provide the policy owner should they terminate their coverage.

Why would I sell my life insurance?

·      Premiums are no longer affordable

·      Policy is no longer needed

·      There is a need to create liquidity to cover unforeseen expenses

·      Supplement retirement income

·      A business is sold or key employee has retired

Who qualifies for a life settlement?

·      Senior individuals age 65 and above

·      Has experienced a decline in health since the coverage was originated

·      Policies $100k or greater

What can I expect to receive? Proceeds of a life settlement are highly case specific and are based on a number of factors which include:

·      Annual cost to maintain the policy

·      Client’s age and health

·      Type of policy

Is this legal?

·      In 1911, the US Supreme Court ruled in the Grigsby v. Russell decision that life insurance, much life other private property, can be sold.

·      Life settlements transactions are currently regulated in 42, by the individual state’s insurance department

Please feel free to contact Long Lake Planning to determine how a life settlement can help maximize the value of your life insurance.

3 Ways To Grow Your Money Through Life Insurance

Life insurance has evolved over the years from a vehicle used to solely provide liquidity and income when a loved one or business partner passes, to one capable of offering so much more. What many view as a one-trick pony proves the adage wrong that old dogs can indeed learn new tricks. Today’s life insurance policies have the ability to:

·      Grow savings on a tax-deferred basis: Unlike a traditional savings account, Interest earned through a life insurance policy's investment account is not subject to an annual tax bill.

·      Provide tax free retirement income when properly structured: A policy owner can access their accumulated funds at any time. In contrast to a 401k or IRA, there is no limit on the annual contributions made to a life insurance policy, and policy owners are not required to attain a minimum age before accessing their funds.

·      Fund a child or grandchild’s college education: Unlike a 529 plan, the funds accumulated in a life insurance policy can be used for any life expense as determined by the policy owner.

Education Funded Through Life Insurance

Are you planning to help pay for your children’s college education? According to Savingforcollege.com's Family Guide to College Savings, In 2015, the average total cost to attend 4 years at a private college is $134,600. Children born this year can expect their total costs to more than double to over $323,900 by the time they turn 18, entering their freshman year in 2033. As parents, we want to do as much for our children within the band of what-is-practical.  While paying each year’s tuition in cash might not be possible for everyone, our contributions make world a difference both during the time our children receive their education, but also in the assumption of student loan obligations which haunt the vast majority of young professionals today. Many of these young men and women find themselves in a position where they’re forced to accept jobs based on compensation, as opposed to passion in order to fulfill the financial debts of their education. As parents, what if we were not here to help with these costs? Would our child still be able to attend the college they see as the best fit? Would they be able to even attend college? In addition to the liquidity offered through the policy’s stated coverage amount, life insurance can enable significant cash accumulation within the policy. With a proper plan in place, the value of this account could represent considerable funds for which to access ensuring our children are able to continue their education uninterrupted. 

Life Insurance Is More Affordable Than You Think

Three independent conversations today began with perspective clients informing me that the primary reason they had not considered purchasing life insurance previously was because they believe it to be too expensive. Today was not an uncommon day, and these were not atypical comments relative to those I hear on a regular basis.  I find this is the single largest myth surrounding life insurance.  One of the individuals this morning was a dear friend of mine who had a genuine need to secure coverage sooner than later as his wife was pregnant with their second child. When I asked my friend how much he thought $500,000 of 20-year level term insurance would cost each year, he quickly replied $1,000. Instead of $1,000 annually, this healthy 32-year-old gentleman was able to secure $500,000 of life insurance along with his family’s future financial obligations for under $450 each year.  There is not an investment in world that can compete with the efficiency and effectiveness of life insurance.  The real number to focus on here is 86%. According to the LIMRA and LIFE Foundation’s 2013 Insurance Barometer Study, 86% of respondents say they haven’t bought life insurance because it’s too expensive, yet overestimate its cost by than 2X.  Life insurance will never be as inexpensive as it is today when you are younger and healthier than you will be tomorrow. Don’t wait until it is too late.

Why It Pays To Plan Ahead

While waiting in line to get coffee this morning, I overheard the couple in front of me discussing their challenges from the prior evening. Not marital challenges; as they appeared to be the picture of happiness holding hands while patiently waiting for their morning caffeine. They’re troubles were as a result of last night’s dinner experience. Not having reservations on a Friday night, the couple had entered a neighborhood restaurant recently having received laudable accolades from local critics. As they entered the space their senses were overcome with the aroma of fresh herbs and homemade desserts while their eyes remained intensely focused on the rack of lamb being delivered to a nearby table. As enthused as this couple was by the prospect of dining here, their dream was quickly squashed as the host shared news that no table was available tonight, or for the next 3 weeks. I do not know where they ended up for dinner, but they continued to discuss how next time, they will plan ahead and make reservations prior to appearing at the city’s newest hotspot on a Friday night. Planning matters; and it matters in all aspects of our life. Whether we were denied dinner service at a restaurant of choice due a lack of planning or find ourselves struggling to make mortgage and education payments following the loss of a spouse, having a proper plan in place can help ensure that when the time comes, you will not only be prepared, but also able to face what lies ahead with confidence.

Is My Employer-Sponsored Life Insurance Enough?

Life insurance is far from a one-size fit all solution, yet many individuals view it as they do the purchase of a new pair of gym socks. A recent conversation with a close friend left me with an uneasy feeling in regards to a belief held by many that their employer-sponsored life insurance is both enough protection, and the most appropriate solution to cover their family in the event of loss.  While a generous addition to an employee’s compensation package, group life insurance policies have significant limitations which need to be better understood by the individual employee and their family to best determine whether or not they need to obtain additional coverage which more accurately reflects their unique goals.  Most group coverage is a temporary form of life insurance. Individuals risk loosing this life insurance and placing their loved ones in jeopardy, should they leave the firm, or have their employment terminated. It is often suggested by advisors, that individuals should obtain life insurance in multiples of their current salary to offset lost income for years to come. While many advisors advocate young families to hold a life insurance multiple of 10X - 20X their current salary in order to properly provide for dependents, the vast majority of employer-sponsored group life policies only cover 1X, 2X, or 3X current salary.  Not only does this represent a huge planning gap which could dramatically impact dependent’s quality of life; major sacrifices will need to be made assuming that lost income is not replaced. The key is to understand your coverage and how it directly impacts the lives of loved ones.

Time For A Policy Review

When was the last time you reviewed the balance and performance of your retirement savings or brokerage account? This is a question I have posed to prospective clients and peers over the past few months. Answers have been quite consistent; with most individuals having done so within the past month or two. As the market fluctuates and goals change over time, it is important to review and rebalance those account holdings to ensure you are planning properly. When I ask the same question to individuals about their life insurance, the result was dramatically different and quite startling. Less than 5% of those I inquired with put any ongoing thought into their life insurance outside of when they are making premium payments. Life insurance is a highly effective planning tool when implemented properly. It can provide protection for loved ones, tax fee liquidity and ensure businesses continue to flourish during transitional periods. With so much at stake, why have less than 5% of individuals reviewed their insurance needs since their current policy was originated? The most common response is that, “I did not know I should review it,” or “my agent never brought up the topic.” While agents should absolutely be proactive in the ongoing management of their client’s insurance policies, clients also need to recognize trigger events for when their current coverage may no longer be adequate in order ensure they have proper coverage when circumstances change.

Below are a few key examples of life events that should prompt a review of your current coverage:

·      Have you recently purchased a new house?

·      Have you welcomed a new child into your family?

·      Are you caring for an aging relative who relies on your financial support?

·      Have you recently gone through a divorce?

·      Have you recently started your own business?

·      Do you have a term life insurance policy approaching the end of its level premium period?

·      Have you recently retired? Do you plan to retire in the near future?

Everyday Risks

Whether it’s recognized at the time, or not, each day we take countless measures to reduce risk. From testing the temperature of the shower water prior to entering, to checking our rearview mirror before backing out of a parking space, to locking our front door, we do what we can to minimize the impact of potentially hazardous situations.  Yet, while we almost instinctively prevent plunging into a boiling hot shower and reversing into oncoming traffic before 9am, a significant number of American families remain uninsured, or under-insured. Life insurance is arguably the single most effective solution to ensure loved ones are provided for when we find ourselves on the wrong end of risk. Mortgages do not disappear, and the cost of raising a child does not decrease when one spouse passes. As the saying goes, the only guarantees in the world are taxes and death. The difference however, is that taxes are due on April 15th each year. Death on the other hand may come when it is least expected. In 2010, according to The Life Insurance and Market Research Association (LIMRA), 40% households with children under 18, say they would immediately have trouble meeting everyday living expenses if a primary wage-earner died today. Having the opportunity to strategically plan for life’s greatest guaranteed risk is an item that needs to be addressed sooner than later.