Key Person and Executive Benefit
A top advisor requested a case design for a 70 year old female who ran a significant 350 employee business and was still the backbone of her firm. He sat on her Board of Directors and the chairman asked, what would happen to the organization if she wasn’t here tomorrow?
This created a lively discussion…
Luckily he was on the board and suggested a key person policy, but with a twist! Since she was also looking for personal insurance that could be transferred to her at retirement – the $1mm key person insurance was split between a permanent policy and a 10 year term policy. Of course he had to refrain from the vote by the board to approve at a subsequent board meeting, but he got the deal after some clever research and working with Westland.
The term insurance was simple enough. 10 year term $500k 70 year old Standard Non-Smoker
$4,390 Annual Premium (Lincoln came out on top recommended)
$500k IUL with Guarantee DB and rapid cash build up
$47,853 Annual premium first 10 years
(NACOLAH Rapid Builder came out on top recommended)
Call Nancy Woo – Fantastic resource. Let her walk you through this illustration. (800)238-8144
If she passed away unexpectedly, The corporation receives the death benefit to offset potential revenue loss and to find her replacement. The corporation also keeps the cash value of the IUL on its balance sheet to offset and make the net cost of the IUL potentially less expensive than the term insurance.
At full retirement, the permanent policy will be considered as a possible executive retirement benefit and could be transferred to the executive (so could the term for that matter). Of course, this would be a taxable event to the executive, but the corporation could use part of the cash value for a bonus to the executive to offset taxes due and give her a reduced death benefit policy that she could carry on her own moving forward.
After 10 years, the death benefit could be nearly $1mm with less than $500k spent in premiums offset by over $500k in cash. Basically the corporation could potentially cover their executive for key person insurance for free and have an option to negotiate an exit benefit using the cash value to fund it.
Ask all your clients’ questions like, what would happen if you were not in the picture any longer tomorrow? If you could no longer work? If you needed to start writing checks for long term care expenses? Don’t gloss over these items, but truly listen to their answers and dig a little deeper into the emotional needs. Then give Westland a call and let us help you develop the best and practical approach to solving the need.
Hopefully these ideas will get your juices going and thinking of clients where you can add real additional value to their family with protection and legacy strategies.
Call for your personalized case designs today. We are here at your service.