Taking care of business — helping business owners navigate uncertainty

For small business owners, not only are they often the “key person” to their business, but they are also key to their family’s current and future financial security. For those business-owner clients who want to plan for business continuity as well as personal financial protection and supplemental retirement needs, a personal key-person solution might be a good option to consider. 

Given market volatility and uncertainty, now, more than ever, clients need and want a plan that will protect, provide and preserve business owners’ needs.

A personal key-person solution insures against the loss of the business owner, through the purchase of an individually owned permanent life insurance policy. Let’s take a look at an example:

Business-owner client who is concerned about the future and would like to incorporate the following goals into his financial plan: 

• Making sure his family has financial security
  He is worried that if something were to happen to him today, his family would have to sell the business in a down market and risk either not being able to get a buyer or not getting the same price for the business as they would during a normal business cycle. It has become apparent to him, that despite his hard work, there are external forces which may impact the value of his business.
• Expanding and diversifying his savings
  He has been fortunate to have built a solid cash reserve for short-term emergencies, but is looking for other tax-efficient savings vehicles that also offer flexibility of access. In addition, since he is in his 50s, he is very interested in supplementing retirement assets. 

Designing the case

• Client committed to funding a plan for the first three years with $1k per month. Then, starting in year four, increasing the funding to $3,400 per month.  Client can commit to that until retirement, which is currently planned for age 70.
• With that cash flow, the John Hancock death benefit would be $1M. This tax-free death benefit would provide financial security and liquidity for his family.
• The policy was illustrated showing random distributions starting at age 72. This was done to highlight the flexibility the client has to take distributions from the policy to cover unexpected expenses or emergencies.
• The policy was also illustrated showing supplemental retirement income of $177k from age 85 through 100 to demonstrate the additional retirement income that might be available should the client need to supplement his current retirement savings.

Click here to see the Personal Key Person presentation

In addition to the flexibility and the protection afforded by the life insurance, the tax-free benefits, including tax-free death benefit and tax-free access to cash value, enhanced the overall benefit the client was seeking.

Why it Works?

• Business owner valued the death benefit protection that would help provide financial security to his family while also protecting his business from a poorly timed sale
• Access to policy cash value may provide the source of funds for unexpected expenses and/or to supplemental retirement income
• Premium flexibility allows client to fund the policy at a lower level allowing business to recover from the down market

Conclusion

Cash value life insurance can help many business-owner clients who have both personal needs and want to protect their business. In short, cash value life insurance offers a solution that “personal key person” clients may be looking for — now, more than ever — to help cover times of financial uncertainty.