Ideas, tips and news about life insurance and the uses of life insurance

Key person life insurance is a type of business life insurance used to insure a company’s financial loss when a person vital to the organization’s success dies. Why have key person life insurance? Let’s look at a few examples.

Let’s say there’s the manager of the factory who knows everything about the methods of manufacture, how the machinery works, is liked by the employees and generally makes production occur. If he should die, what would be the financial loss (not even mentioning the emotional loss) to the company? It could be substantial.

What about the lead salesperson who knows and is trusted by major clients or the lead software developer in a software company? Key person life insurance is a prudent business action to take. It could keep a company from financial loss and keep it going or even save it from failure.

Contact lifeinsure.com to get quotes for and to set up key person life insurance for your key employees.

Survivorship life insurance, also known as joint and survivor life insurance or second to die life insurance is a special type of insurance that covers two people, usually man and wife, and pays the benefit after both have died.

In general, the purpose of life insurance is to give a lump sum of money to help with financial obligations when someone dies. This type of joint life insurance accomplishes this for a specific obligation; to pay the estate taxes due when both parents are gone. Years ago, estate taxes became due when any person of wealth died. Under Reagan the law changed and estate taxes could be delayed for a couple until both died, thus second to die insurance or survivorship insurance became popular as a means of creating the cash to pay the tax obligation.

The pricing for survivorship life insurance is lower than that for an individual whole life insurance or universal life insurance policy because, statistically, the insurance claim is more likely to be paid later than life insurance covering just one person.

The funds are designed to arrive at the exact time they are needed. These policies usually have a third party owner such as an irrevocable life insurance trust or an adult child or adult children. This way the policy can be set up so that the insurance proceeds are free of estate taxes. If it is owned by the insureds, it would increase the estate and would be taxed.

An attorney should set up and advise you on the proper ownership method for you. Learn more about survivorship life insurance or get a free market analysis of survivorship life insurance quotes from lifeinsure.com.

Life insurance, as most people know, is a unique financial instrument that helps families by creating a lump sum that can be use to replace some or all of the income that is lost when someone dies. It also can be used to help businesses with the financial loss when an owner or a key person dies.

One of the most common business uses for life insurance is to fund buy and sell agreements. Another use is key person insurance. I’ll get to key person life insurance in another post but first some information, through the use of an example, about funding buy/sell agreements.

Bill and Sara are equal shareholders in a software development business worth $2,000,000. The business is doing well and is growing. Bill is the “techie” and Sara runs sales and PR. Bill is married to Lisa who is a teacher. Sara is married to Bob, who runs an electrical contracting business. Things are going well but one day Bill develops high blood pressure, dizziness and over time is unable to work full time. He is diagnosed with a heart problem, has a quadruple bypass but unfortunately the condition deteriorates. Within a year, Bill passes away. Along with the emotional upset, Sara now has a business without the tech expert who built the software.

So Bill has to be replaced. Also, Bill drew $100,000 per year out of the business and Lisa (his wife)needs the income to pay bills. Now Sara has three problems: the emotional loss of her business partner, the loss of the technical brains of the business and now the financial problems of her new partner. Who’s the new partner? Answer: Bill’s wife Lisa who is Bill’s heir. Bill left all his assets to Lisa including his share of the business. This is a mess.

How could it have been avoided? By having a buy/sell agreement and funding that agreement. This would have allowed the surviving shareholder, Sara to pay Bill’s heir, Lisa, for the business. Sara would have then owned the business 100% and Lisa would have cash equal to Bill’s shares.

Since there will be funds needed to hire a replacement and a potential financial disruption of the business, key person life insurance would have been a good idea as well. The problem is where does Sara get the money to buy out Lisa?

The smart move would have been to have taken life insurance out covering each other along with agreeing to the buy out while they were both living. How does that play out? When both were healthy, Bill and Sara agree that the value of the business is $2,000,000. Their attorney draws up a buy sell agreement that binds both Bill and Sara and their spouses sign off on it.

When Bill died Sara would have received $1,000,000 which she could then use to buy Lisa’s shares. Sara then would own 100% of the business. Bill’s heirs have cash equal to their value of the business. This is smart planning. If you have a business with other shareholders or a key person vital to your business, talk to the Lifeinsure.com experts.

This is a simple one. Check the market. There are different ways to check the market.

You could call a local agent and if he or she is very good, they could get you a great price. You also could get in touch with several insurance agents and check them against each other, similar to what you might do when comparing car prices. But even if you did that, how do you know if you’re getting the lowest premium from a strong life insurance company?

The other way is to go online to a website that quotes the major term life insurance companies and see for yourself the whole range of competitive prices.

The lifeinsure.com site is a great resource to do that. A unique advantage that lifeinsure.com has is that on that site you can check term life insurance quotes for yourself, anonymously, before you make contact. You can see and compare prices for different types of term life insurance for yourself and by yourself and see the insurance company financial strength ratings right online without an agent .