Why you should have a buy-sell agreement for your business

Business continuation is a question I ask business owners about when meeting with them. Without a plan in place, the business and owners can lose control if something unexpected happens to one of the owners.

Recently, I was in a business talking with an owner about another issue and our conversation transitioned over to buy-sell agreement planning. These owners had talked about getting a buy-sell agreement in the past years, but it was something that they put off because nothing was likely to happen. Well, as we all know, things do happen. An owner became ill and eventually passed away leaving the business by default to the heirs.

Once partners who started and built the business together and knew everything about how thing ran and why, now had new partners. These new partners questioned and had to understand why things ran the way they did. The new partner had to understand the vendor, employee and buyer relationships that both original owners had developed over the years. And worse yet, the new partner was not participating in the running of the business, yet felt they should fully share in the profits of the business that was built by their loved one.

Why a buy-sell agreement could help

If a simple buy-sell agreement was put in place, transition of ownership would have been as clear as the agreement terms. But without this buy-sell agreement, the surviving partner needs to try and negotiate the terms of sale from the heirs, if they are even willing to sell their interest. Or the sale of the business could be forced by the heirs in many cases, if they want to get the equity out of the business. They could also sell their share to a competitor or any other party whom they wish. As you can see, without a buy-sell agreement, the surviving partners can be at the mercy of the heirs.

With a buy-sell agreement in place, the valuation of the business will likely be set and terms of who can/will purchase the outstanding shares or ownership rights will be spelled out in the agreement contractually. If the plan has been funded properly with Insurance or another funding source, then this transition will be a smooth one.

Will you need a buy-sell agreement

If you are in business long enough, you will want/need to transition your business interest to another. You can prevent a situation from occurring where you, your partners and your business are out of control. Look at getting a buy-sell agreement or succession plan that spells out your wishes and executes them accordingly. Even if that means the liquidation of the business, it will be on the terms that you want, not that of a court or other party.

A well drafted buy-sell agreement will address transfer of ownership of your business in the case of death, in the case of disability or if an owner wants to leave the business and sell their ownership position. It is always better to have a plan in place that spells out how ownership will be transferred and who has the first right of refusal to purchase those ownership rights. It is also wise to do this when owners are on good working terms.

How to get started on a buy-sell agreement

Please consult with a qualified attorney who has experience in business buy-sell agreements or business continuation plans. They will be a resource of information for you and can help you draw up a plan that fits your business and wishes. If you have questions about funding your buy-sell agreement or business continuation plan please let us know. Life Insurance and Disability Insurance products can often provide cost effective options to fund and provide protection to all parties to a buy-sell agreement.

Group Life Insurance is often not enough

People often ask me if the group life insurance they can get from their employer is enough to protect their families’ needs. For many people group life insurance might be a good solution or at least a good starting point to supplement your families’ plan of protection. In this post I will go into some of the details of group life insurance policies/certificates and why they are a great benefit for employees. I will also look at some of the limitations of group life insurance and why you need to look at buying your own policy.

I will also talk about individual life insurance policies here. They are really the other option and are typically a good way to supplemental the group coverage from your employer.

Buying Group Life Insurance

Group life insurance is a benefit that many employers make part of their benefits package for their employees. This benefit can be purchased as part of a package of benefits or as a stand-alone benefit. Usually you will be eligible for this benefit when the plan is started or when an employee first joins the employer There is often a base benefit that all employees will receive. Plans will sometimes offer an annual enrollment period.

There is usually also an option to buy up additional coverage for you and possible your family on a guaranteed basis. This will allow you to buy a limited amount of additional coverage up to a certain limit. There are usually no or limited questions about your health. This can be very beneficial if you have health issues and cannot qualify for an individual policy.

The issue of everyone being able to buy up additional amounts can be a double edge sword. This is great if you aren’t healthy, have a chronic disease or are a smoker. These are conditions that traditional Life Insurance companies don’t like because you are much more likely to die at a younger age. The limited questions being asked of employees enrolling in the group life insurance plans makes the easy to qualify for. For some people that might not otherwise be able to get coverage, this is a great option.

Can I take my Group Life Insurance policy with me if I leave?

This is what we call portability. One problem with Group Life Insurance is that you do not own your policy. You are issued a group policy or certificate. Depending on what is stated in the master plan contract, you may have options.

It is possible to take your policy with you in some instances, but it can cost you a lot of money. The first permanent product I sold when I started my career was a conversion from a Group policy. This individual had an additional $213,000 group life insurance certificate and was leaving the company he was with. He was going to lose the coverage or had to convert the policy to a permanent policy. There were a few problems with this…

  • He had to convert to a particular policy type, which ended up being very expensive
  • He only had $213K of coverage, which was less than he wanted
  • He got the standard rate which carried over from the group policy, so this added to the cost

In the end, this was a good deal for him, because he had a terminal disease and could no longer work and was going to lose the group life insurance policy if he could not convert it. Fortunately, he had the money to pay the high premium because most people would not have been able to pay that amount for long. In the end he would pass away knowing that his family would have some financial resources.

Can Group Life Insurance prices increase?

The prices for Group Life Insurance are not fixed and can go up depending on the experience of the group. If the group has some big losses, all the people that participate in the group life insurance coverage may face rate increases.
The prices for group life insurance may also be age banded. So if you start at age 30-34, when you hit ages 35, 40, 45 etc, you might see your rates increase, as the following table illustrates.

Age Rate per $1,000
<25 $0.07
25-34 $0.09
35-39 $o.10
40-44 $0.12
45-49 $0.16
50-54 $0.24
55-64 $o.58
65-70 $1.31

Group Life Insurance: Is it worth it?

Group Life Insurance is a very good opportunity for people that could not get coverage on their own to protect their families. It can cost a lot as you age and is usually only going to be an option while you are working at a particular company.

Group Life Insurance can also be a basic amount of coverage that employers often provide to their employees. Being that group life insurance is often given at no cost to employees, it is a great base level benefit.

If you have been turned down or you know that you can’t qualify for an individual life insurance policy, get as much group life insurance as you need or they will give you. If you have any questions about your being healthy enough to qualify for an individual policy, then talk to me and we can see if a group life insurance or an individual policy is the best for you. Most people can get their own Life Insurance policy; people just need to talk to an independent agent that can find the right policy for them.

If you are healthy and want to protect your family and loved ones, then look into getting an individual life insurance policy. You can get more coverage, at a better rate and

    you

will own the policy. In looking at the prices and the options available to people, it can save you money and stress over relying on just group life insurance.

Final thoughts on Group Life Insurance

I do not offer tax advice, but generally speaking, if you pay for your group life insurance with pre-tax dollars the benefit will be taxed. This is a huge issue for some people. I have a friend who recently received a small check from a life insurance settlement and then she received a 1099 for the payment at the end of the year. She thought it would be income tax free, so I told her to check with the company. Sure enough, it was a benefit that his union paid for, so since the group life insurance was not paid for by the insured, it was fully taxable.

You can often not get enough group life insurance to protect your family adequately. I hear guys joke about “I don’t want to leave them rich”, but do you want to leave them poor and destitute? Group Life Insurance will usually be based on multiples of your salary. This is never going to be enough to allow your kids to stay in their house or go to the schools you would want them to. You need to talk to someone that can help you look at what you need and want for your family.

I hope you found this interesting and let me know what questions you have,
Stephen

When to buy Life Insurance


I am often asked "when is the right time to buy Life Insurance?" In my experience, this can be a tricky question.

Life Insurance really does provide a lot of protection for the cost, whether you are buying life insurance because you are getting married, having a child, or to protect your family. Most people buy Life Insurance to protect the ones they love. The cost is so low, there is no reason not to buy Life Insurance.
Have a Plan to buy life insurance
But you are healthy today, so why bother going through the process to buy life insurance now? Do you know anyone who died at an early age, or that you were surprised when you heard they were very sick or passed away? Life can be random and tragic!

If I had a crystal ball, I would be able to tell you exactly the best moment to buy life insurance. Since I don't, I would recommend that you not wait on this decision. If you now have a reason to protect your family or business, then the time to buy life insurance is now. The process is not very difficult. Once you decide the type of life insurance you want and for how long you want to have this protection in place, you just need to apply and see what the company will offer you for rates. If you are happy with the offer, you accept the life insurance policy and pay the premiums.

The problem of waiting to buy life insurance is that you do not know what the future holds. We hope for the best, but it is always best to plan ahead. If you care about someone who counts on your paycheck or other support that you provide, then buy life insurance now.

Why buy Life Insurance Today?

I have had many experiences with people that have had life insurance and passed away. These stories of missed loved one are hard to hear but not having to worry about financial hardship takes that one burden away. The grieving process is hard enough.

Unfortunately, there are also many people that pass away without having planned ahead or having been able to buy life insurance. In these instances, the stories are always much worse. We have all seen the jars at the local store for families trying to pay for final expenses.

One client called me and asked me to come over to their house so they could buy life insurance. They were friends and they had been putting it off, so I was curious why they finally did decide to move forward with buying life insurance. It turned out that another friend of theirs had gotten cancer and was terminal. In his last days, he sent a letter out to all his friends telling them about his experience. He had not bought life insurance and now he worried for his family. His letter asked all their friends not to make the same mistake of not buying insurance. This is what made them make the decision to move forward.

So if you care about providing for your family, or another party, and want to provide financial protection, I recommend you to buy life insurance today. At the very least, call and check on your options and see if you should buy life insurance.

If you have questions about how to start the process to buy life insurance call me or visit Level-Term.com .

How much life insurance to buy?

How much Life Insurance should I buy or have, is one of the questions that I hear all the time. You will want to have enough Life Insurance that, if something happens, you will not be worried if your family can survive financially. There will be lots of stress on your family and loved ones if something were to happen to you. If you have looked at how much Life Insurance you need, at least they will not have to worry about having to find another place to live or changing their standard of living.

I have had to look at how much Life Insurance I should buy to protect my family as well. I have 4 children that depend on my providing for them. If something were to happen, my wife is not going to be able to go get a job to make up for the loss of income. Even if she could, I would rather know how much Life Insurance I need to protect my family by replacing my income until the kids are through college and are self suffient. Then my wife will be able to greive and be there for my children, who also need to have time to greive for the loss of a parent.

So what are some ways of determining how much Life Insurance you need?

1. How much (income do you make each year) * how many (years you want to replace income)
2. Annual income * (# of working years you have left)
3. Expenses and liabilities you want to cover, if you were not going to be here tomorrow to take care of them. ie: a child’s future college expenses, paying off student loans or paying of a homes mortgage
4. 20 times your current annual income

These are but a few of infinite possibilities, when it comes to determining how much Life Insurance you need. Following are some links to a few of the online Life Insurance calculators that I like to refer people to, so they can themselves determine how much Life Insurance they need.

LifeHappens.com Calculator

Prudential’s Calculator

As we get older, we all lose people in our lives that die sooner than they should have. If something does happen to you, you do not want to be asking yourself, “how much Life Insurance should I have”, because it will then be too late. Take action today and protect your family and those that you love. Know how much Life Insurance you want to have, and go get it.

As always, please let me know if I can help you in anyway. Steve

How to apply for Life Insurance the easy way

Learning how to apply for Life Insurance is not difficult. If you want to save money on your current Life Insurance policy, check current quotes to see if you should apply for Life Insurance again.

  1. The first thing you need to determine is what you want the life insurance to protect.
  2. Determine if you need temporary or permanent coverage.
    • If temporary life insurance coverage is needed, for how long? Might there be a need beyond that?
    • If permanent life insurance coverage is needed, then determine the best type of policy.
  3. Run a quote using my life insurance quote engine to see your term options at Level-Term.com

You can apply for Life Insurance immediately, if you are confident that you found a policy that you need. If you are looking for a permanent life insurance policy or have any questions about your options, then you need to call me. There are lots of options and I am sure this is not something you want to do more than needed.

Buying and applying for Life Insurance used to be complicated, but for many it is now as easy as running a quote and clicking apply. This will allow you to start filling out the application and then we will contact you to complete the application and schedule any needed exams or tests.

Don't wait until you something happens to apply for Life Insurance. At that point you will have waited to long. Insurance companies are willing to offer you Life Insurance only if you are healthy or an insurable risk. To often get calls from people that talked to their doctor and may be facing cancer, hepatitis or a heart condition. The insurance companies will usually make you wait until you are in a stable condition, before they will consider writing a policy on you. Even if I can help you apply for Life Insurance at this point, you will pay much more than you needed to.

What if you don't know where to start applying for Life Insurance?

If you don't know where to start in the process to apply for Life Insurance, just give us a call. I can help you look at your options and get you on the road to protecting your family.

As always, let me know if you have any questions about applying for Life Insurance for you or a person you love. Our conversation will be confidential and there will be no pressure.