Life Insurance In A Business
David Cowper and business Insurance
David was a huge insurance producer who passed away some time ago. He left me with several cogent thoughts. Most of them I have used in my business. The one I use the most is the idea that people who own businesses are always in the middle of something.
No business person ever dies when everything is done.
What does that mean?
Things carry forward after death.
- Debt. Many debts become difficult to service when the business decision maker, visionary and guide passes on. Some lenders likely relied on the acumen of the deceased to justify their credit offering. Banks are the first to call in the survivors for an assessment. Suppliers will be not far behind. Money will mollify them.
- Commitments. Contracts that are not yet fulfilled are common in any business. Some of them may not be possible without the owner. Those may have a buyout price.
- Family security. Many business people think their business is their family’s security. That may look right on paper but it seldom works out that way. Many family businesses pass away shortly after their founder. If you have a business worth $3 million, is that the same as having $3 million in cash? In a different light, suppose your widow came to me and says, “My husband passed away and I have $3 million. I would like you to help me invest it.” I reply, “I know just the thing. There is a business available that is worth $3 million and it is available because the owner died. It has been a good business and it meets your budget quite well.”
Would I get sued when the widow discovers she doesn’t know how to run the business, the bank has bailed out, and the key people have left? Quite likely. Is that the same condition that exists when a business person decides their business is their estate? They are harder to sue however, so I suppose the widow I advised would be better off.
- Other stakeholders. Employees, customers and suppliers rely on the business. Anything that helps things continue in the old way is welcome. Be sure there is a plan of succession. One for the short run. Who signs checks, who is the decision maker, who deals with the customers and suppliers, who is in charge of quality control, marketing, manufacturing and finance? For the long run, who takes over? Employees, family, an external buyer?
It helps if the questions have been considered and arrangements made, but that is exceptional, even when the owner is older. Think about it. If you spend your life building a business, does it make sense to lose half its value within 60 days of your death? If the business must fail and be auctioned off, then what?
No one dislikes cash in an estate
Most survivors will be happy to have some money. It will meet needs that the business person may have overlooked. The worst that happens is the legacy is a bit too big. No one has ever complained about that either.
Insurance is a tool.
It is the most efficient way to put cash into an estate. Everyone from Malcolm Forbes to Elon Musk uses it. They could get advice from anyone and make sound financial decisions. They use the life insurance tool because it works. At his death Malcolm Forbes owned more than $70 million of coverage. The reason he owned it, “Life insurance is an efficient way to pass assets to heirs.”
That stays true even if you live to an advanced age.
Life insurance is an efficient tool and more people have the need to use it than do use it.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 705-927-4770