Life Insurance Review

Chances are, many aspects of your business have changed since you last purchased life insurance. Your needs may have grown and your current coverage may be insufficient. Your existing policies may have underperformed and you might now risk unexpected premiums, taxable events or even unexpected costs for benefit plans that you purchased and implemented in a far different economic and interest rate environment.

A Life Insurance Review is not a replacement program. Instead, it is part of an ongoing assessment of your business’ ever-changing needs. We can work with you to help you realistically assess your needs and the status of your current coverage with sophisticated tools to:

Ø     Examine your current coverage and offer detailed, unbiased analysis of your policies’ performance

Ø      Compare your current coverage to your anticipated future needs

Ø      Compare your current coverage to your anticipated future needs

Ø  Lower Costs - In many cases, newer policies have lower cost structures than policies issued as recently as two or three years ago.

Ø  Carriers’ Financial Status - If the financial stability of a carrier changes, it’s often advisable to switch to a financially sound company.

Ø  Health Changes - Improvements in health can affect the underlying policy cost.

Ø  Underwriting Issues - New underwriting programs could reduce a policy’s mortality costs or eliminate undesirable ratings. 

Reviewing the Role of Life Insurance in the Business Planning Processes:

Key Employees Casper & Company has two star performers, a chief financial officer and a head salesperson, who have driven much of the business growth. While not owners, if something were to happen to them, the business would suffer a financial setback. Some years ago, $500,000 of insurance was purchased on each of them as protection against their unexpected deaths. This might no longer be adequate coverage.

Ø   If the financial officer were not around, costs of replacing him would include recruiting costs and a new offer package. A search for a qualified candidate might take six months to a year — and then the new hire would need to become oriented to the business. In the meantime, the empty position’s duties might need to be outsourced. Actual replacement costs are estimated to be closer to $1 .25 million.

Ø  The absence of the head salesperson would result in an estimated reduction in sales of close to $1 million in just one year Along with the cost of recruiting and training a qualified replacement, the actual potential loss is determined to be approximately $2 million.

The use of permanent insurance can help ensure that the business has ownership of policy cash values.

Ø  A Death Benefit Plan — to provide three key employees’ surviving families with three times their earnings in the event of a premature death

Ø  A Supplemental Executive Retirement Plan — to provide these same three employees with supplemental income, above and beyond the company provided qualified plan benefits, for 10 years after retirement.

The death benefit plan was funded with business owned life insurance when the three employees’ salaries were much less than their current salaries. It has also been discovered that these policies have not been credited the amounts that were shown in the illustrations that were done eight years ago, under a very different economy. Not only are the policies inadequate to meet current needs, they are underperforming. The supplemental retirement program has also underperformed. Moreover, two new key employees who have been added, have not received these benefits.

Business Continuation Plans were set up 10 years ago. They were well designed and planned for expansions in the business’ value. However, the insurance that was purchased was based on a business valuation that is over five years old. In the next few months a minority shareholder is scheduled to join the company. Both events are key reasons to reassess the business’ existing life insurance.

Events that Could Trigger a Need to Review a Client’s Life Insurance:

• Changes in Business Values
  • Current insurance insufficient for existing buy-sell plans 
  • Term insurance inadequate or potentially costly for long-term needs
• Changes in Ownership
• Changes in Your Key Employees
  • Insurance insufficient to replace current Key Employees
  • Changes in existing Key Employee duties
• Changes in Business Debt
• Changes in Nonqualified Benefit Programs
  • New or expanded programs
  • Changes in tax status that may call for revised programs
• Personal Changes with Owners
  • Improving health and lifestyle changes that make life insurance less costlyIncreases in net worth and your estate

Provided By:  Mark Kandarian