Mind your own business!!

My mother never told me running a small business was easy. In fact it went something more like, “wouldn’t you be better off getting a real job?”

Whether you are in business for yourself, or work for someone, your future can be in jeopardy if you, or they, have not adequately protected the business with business life insurance. The untimely death of an owner, partner, or key person in a business when there is no business life insurance such as a buy/sell insurance policy or key man insurance in place can be the beginning of quick end.

We often think of life insurance just in terms of protecting our family from the loss of income if a parent should die, or in terms of final expense or burial life insurance. The unexpected death of a business owner or key person can have a dramatic impact, not only on their family, but on the employees of the business and their families.

If you own a business and don’t currently have business life insurance, meet with an independent life insurance agent soon and review the structure and financials of your business. The agent can then make recommendations and provide insurance quotes that help your business become a legacy to your family and your partner(s) and employees, rather than a loss to them all.

In most cases you will want to look at term insurance or possibly return of premium term insurance rather than universal life or whole life. Why term insurance? The truth is that most businesses change too rapidly to make locking in even the longer terms or permanent insurance. A more prudent approach is to look at each aspect of your business and consider the proper term length. It may take more than one life insurance policy, but with term insurance being as affordable as it is, you should certainly be able to protect your business without significant impact on your budget.

So, mind your own business! A good steward of a business will ensure that the business will survive them.

Will sell life insurance for food!!

Yes, believe it or not, life insurance agents make money by selling life insurance. This generally isn’t a problem. It is a commission only business though and the truth is that if you don’t make sales you can’t buy food. For those agents who have weathered some years and food isn’t the issue, the focus can shift to making more and more sales to support whatever lifestyle they have grown accustomed to.

This doesn’t create any problems with term life insurance. With term there aren’t really any options in the way it is presented or sold. It is what it is. Usually a 10, 15, 20 or 30 years guaranteed level premium term, or perhaps a return of premium term policy. Bottom line is term life insurance is a hard product to misrepresent. I’m not saying it can’t happen, it is just harder.

MISREPRESENT? Why would a life insurance agent misrepresent something. Well, life insurance is a very competitive business and with the internet, and independent life insurance agents competing with captive career agents, it often comes down to who presents the best price. Now, I heard someone shout, “hey stupid, what’s wrong with the best price?”

Ok, before I get booed off of my own blog, let me explain. We are now going to shift to universal life and whole life policies. Now we have products that are more complex. There are guarantees, but there are also assumptions. If I base the life insurance quote I present you on assumptions, something that may or may not happen, the price is lower than if I base the life insurance quote on guarantees, something that will absolutely happen. A lot of times the price difference isn’t huge, but when a client doesn’t understand all of that insurance mumbo jumbo, they trust the agent selling the assumptions and ask for the lowest price.

The guy that was desperate for the sale wins. He gets his commission and buys his food. The customer, on the other hand, is left with a policy that is not guaranteed, and statistics would show that the policy sold in that way is more likely than not to fall apart, become extinct, lapse, fail, etc. The customer loses the money he has put in and is left without the life insurance he was told he would have. This happens so often that it is no wonder some people aren’t real fond of life insurance companies or agents.

How to avoid it? When you sit down with your independent life insurance agent to get your universal life or whole  life insurance quotes, insist on seeing the guarantees. If the agent starts trying to get you to focus on the current assumptions (also known as non guarantees), bring them back to the guarantees. If they try to go back to the assumptions, walk out. DO NOT DO BUSINESS WITH THEM!!!!!

 If you already have a universal life or whole life policy and don’t know what the guarantees are, go to an independent agent other than the one you bought it from and have it reviewed. Why, you ask, should you go to another agent? Because if you don’t know what the guarantees are, you were more than likely sold assumptions. Agents that sell guarantees drive the point home. We’re proud of it. And, if the person did it to you once, they will try to do it again and that means they could potentially get paid twice for the same wrong thing.

Let’s take life seriously for a moment! Valid in all 50 states and DC!

If you’re an adult with any kind of responsibilities in this world, you should be carrying a life insurance policy. That old saying that “there are two things that are certain in life, death and taxes” has a lot of truth to it. The big difference is that you know when the taxes come due.

So to keep from leaving your responsibilities, whether that is a family, a business, or a debt, not taken care of, follow these instructions. Go online and make it easy on yourself. Do a search for term life insurance. Scroll down past all of the big on line brokerages like Selectquote, Accuquote, Eterm, Reliaquote, etc. I’m not saying that you can’t get life insurance there, but if you pass them up and go down to an independent agency you can a more accurate insurance quotes, get life insurance just as fast, get it at the same price and……..you’ll actually get good service.

Talk to an independent agent and tell them what your responsiblities are and ask them to make recommendations. Ask them to explain the different options such as whole life, universal life (mkae sure you ask them about a no lapse guarantee), term insurance and return of premium life insurance.

Then make a decision. Put something in force. Take responsibility.

OK. I heard someone say whoa! You want to shop around and think about it and compare things and think about it and check the company ratings and financials and think about it and beat it to death. Whoa! There’s that word again. Death!!! Remember, you know when the taxes are coming due. I’ll bet every person you know or stop on the street can tell you of a story of someone who died an “untimely” death.

So, buy the life insurance. Pay for it on a monthly basis and then do all of those things you want to do to make sure you got the best deal with the best company. If you find something better, apply for it. Once it is approved and you know you have a better deal, put it in force and cancel the one you bought. That is the responsible thing to do.

Disclaimer: All of my opinions are valid in all 50 states and DC.

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.

Tax free money!!

I try never to assume that everyone knows all of the benefits of life insurance. One that is huge beyond measure for your heirs is that the life insurance benefit that you leave behind is not income taxable. Unlike hitting the lottery, the government has graciously agreed to keep their hands off of your life insurance proceeds and allow your heirs to keep their hands on 100% of what you left for them.

A couple of thoughts along those lines. A study recently showed that about 75% of retired people left much of their retirement behind in the form of unused IRA, 401k and annuity money. They just didn’t need it. While I have encouraged my parents to spend their money, the truth is that like most, they simply don’t need all of it.

The problem is that the inheritance they are leaving behind will be taxable. The solution, once they realize that there is money that will just draw interest until they die, is to use that money to purchase life insurance, turning taxable inheritance into non taxable inheritance.

Another life insurance non taxable event is when a return of premium term insurance policy matures. The way return of premium term works is that, for example, your $500,000, 30 year term policy has a cost of $1000 per year. If you die during ther term, your heirs get $500,000. If you outlive the term, you get an income tax free return of all of the premium you paid in. $30,000 income tax free.

At another time I will speak to the estate tax connections to life insurance and how best to prepare for estate taxes if you have an estate that exceeds the current federal exemption of $2,000,000.

Why buy life insurance? Why not put the money into an investment?

How many times have I heard that? The conversation goes something like this. “Mr Smith, based on your health information it looks like we should be able to get a $1,000,000, 20 year term policy for $1200 a year, about $100 per month.” Mr Smith counters with “Well, as young and healthy as I am, it seems like I would be way ahead putting that money into an investment or retirement plan rather than just throwing it away on insurance I probably won’t ever need.”

Sometimes it just isn’t easy getting people, and especially healthy people, to see that this isn’t about them. It’s about the family that’s left behind. They say “what if I don’t die during the term of policy? I will have wasted all that money.”

In the mind of a responsible person is the idea that if they outlive their term insurance, then it did its’ job and they are still here enjoying the family they were protecting.

For those who really do care about protecting their family, but really can’t get past the idea that they might “waste” some money, there is always permanent coverage like universal life. It will guarantee that you won’t outlive the insurance by guaranteeing the policy for life.

Another avenue would be return of premium term insurance. It gives you the protection you need for a set number of years and if you don’t die before the end of the term, you get all your money back. Free Insurance!!

There really aren’t any good excuses for not carrying adequate life insurance. It’s the adult, responsible thing to do if someone in your life would suffer if you died prematurely.

 Mark Twain once said, “The man who dies without adequate life insurance should have to come back and see the mess they created.”