How valuable is your manager??

This is a country made of small businesses and generally speaking, all of those that have employees have managers. As long as I am sailing with generalities, I think it’s safe to say that a good manager is a very valuable asset. Which leads me to another generality. I believe that most business owners would agree that insuring the valuable assets of their business is a prudent idea. And lastly, the loss of a valuable asset can cause a substantial financial loss to the business if it isn’t insured.

I’m not sure an attorney of generalities could have built a better case for a type of business life insurance called key man insurance. 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, in this case, a return of premium term insurance policy, is two times the annual premium 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 two years 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 would 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 we can certainly justify the key man policy.

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. Our manager has made us tons of money and save 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.

If that doesn’t get you all choked up, you could be a manager whose employer bought the wrong kind of term life insurance.

Is it REALLY possible to save 70% on your life insurance??

You see it on advertising all the time, but is it true. Whether you are getting life insurance quotes from an indepedent agent or a captive home town agent, you need to know that it is absolutely true that you can save 70% and often much more than that.

There are two reasons that I’ve seen for this oddity. I mean, if a person wants $500,000 of 20 year term insurance, it should be fairly close in price from one company to the next, right? So, the two reasons!!

First is differences in underwriting from one company to another. For example, family history is an underwriting criteria with every company. It can be vary greatly from company to company. Say the policy above is for a 45 year old male in perfect health, whose mother died of cancer at age 59. That $500,000, 20 year term with Reliastar would cost $645 a year because they don’t count family history of cancer against you (heart disease is a different story). With Banner Life the policy would cost $1045 a year because they believe that history is significant enough to bump you two rate classes. Same person, same product, 62% higher premium because of an underwriting guideline.

The other reason for large differences is that a company really isn’t out to sell life insurance. Let’s say the guy above qualifies for the best rate available today because his mother didn’t have cancer. Coincidentally, Banner Life who bombed him for the family history, would give him the best rate available without it at $635 a year. Now if you happen to be swooned by an agent who represent Provident Life and Accident, the same policy will cost $1135 a year. That’s 56% higher and there is no difference in the rate class. The only conclusion I can come to is that Provident doesn’t want to deal with it, so if they have to deal with it, they want to make a lot of money for their trouble.

Yes, 70% is possible. Get a good independent agent and get a good rate.