What’s Life Insurance For

People need a reason

Life insurance is not an easy purchase. perhaps a few of the reasons might help some people make the decision.

There are several

Premature death to replace the value of a career.

There are two situations.

  1. Provide income and capital for a family. People have come to expect to live long enough to provide the necessities for their loved ones. People who have too little insurance provided for them usually end up giving up things they would like. Things like their preferred home, maybe a pet. Maybe an education for the children.  It usually ends badly. It is enough to lose the person. They should not have to lose lifestyle too.
  2. Provide capital for business partners. Most well manged businesses have a shareholder agreement that requires the survivors buy out the estate of the deceased. The family may end up okay, but the surviving partners lose two things. A lot of money to do the buyout, credibility with creditors, and the skills and experience of the deceased. Most businesses have no convenient time to lose a partner. While skilled people are difficult to replace, money goes a long way to salving the wound.

Death at older ages

The family situation is normally not one of lifestyle or not. Life insurance accomplishes two key needs in an estate. Old insurance still has probate value.

  1. It provides cash to pay liabilities. If people have significant tax and other liabilities in their estate, the executors will seek the cash to pay those. If the cash is available form an insurance policy, all is well. If not the executor will sell something or borrow. Borrowing is problematic if the remaining assets are complex. Like a business. Who will run it? Selling complex assets is also difficult. It is unlikely the executor will get top dollar for what remains. Who think “Estate Sale” means expect a bargain.
  2. Many estates do not readily divide into convenient sized pieces. Life insurance can provide additional liquid assets so the heirs get equal value when some of the asets must remain with just one of them. Businesses usually require a bump in the asset pile in order to keep the heirs more or less equal. Life insurance is also a convenient way to fund charitable bequests without disposing of family assets like farm, home, cottage, business, or collectibles.

People will do what they should if they know why.

Business with no insurance are usually diminished in value by half or more if there is a single owner. Many of the others don’t survive because the buyout was more than the business could afford with half the talent. No business person should assume their business is their estate. It rarely is.

Life insurance is an easy purchase if the problem is properly exposed. It is by far the least costly way to put cash into an estate. Every estate is better off with more liquidity. More money is never a problem for anyone.

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. don@moneyfyi.com 705-927-4770

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