Thought for the day:
“Those who die without life insurance should be made to come back to see the mess they’ve created.”
Will Rogers
If you will read no further:
As America ages, insurance and annuities are a growing segment in the arena of personal finance and must be understood by all who practice investment management and financial planning.
“In todays’ highly competitive, compliance-driven culture, you must be educated, informed and skilled. Take advantage of the Westland expertise in every aspect of insurance marketing, case design, selling, underwriting, delivery and post-sale service. Put a higher degree of confidence into your insurance advice. – Charles F. Chillingworth
Thought for the week:
Steve has a successful company that has been managed by his daughter, Julie for the last five years. At age 45 she is clearly capable of growing the company and taking it to another level….as long as he sticks around for a while to allow her time to mature her own relationships with their customers and complete the transition to a 21st century business model.
For years Steve has owned life insurance (several $million) as a “key-man” and to function as an integral part of the purchase agreement that Julie will use to buy out her brother who is anything but capitalistically inclined…but that is a story for another time. The life insurance has always been term insurance to keep the cost low. Actually for the past 15 years or so, keeping insurance premiums low needn’t have been a top priority and now we know that it shouldn’t have been. For now Steve has a $3million policy that is “terming-out” and his health is really tenuous….so bad in fact that new term insurance will cost him $68,000 per year (table 6). He could convert the old term policy but they want $325,000 per year to convert to a permanent policy, his only other option.
Fortunately, in a few more years, Julie will not have to rely on her dad’s contacts to keep the business viable so as a key-man policy it certainly won’t be needed. However, with dad in such poor health, having that $3million as a resource to buy out her brother is certainly desirable. But he will have to die in 10 years or they face another renewal which will only be an option to convert to a policy that will cost several hundred thousand dollars per year.
Which begs the question; what happened to the old adage about “buy term insurance to protect your family and business when you are young then when you are older you will no longer need it”?
Steve bought the cheap stuff and spent the difference all the time when he wasn’t very likely to die. And now that he is certain to die and the proceeds could be put to such good use by all concerned, it is becoming more and more difficult and soon to be impossible.
Steve opted to purchase the new term insurance policy hoping to outlive it and “waste” $680,000. The insurance company hopes he turns out to be right. Both feel it is a gamble worth taking. Julie, on the other hand has a $3million term insurance policy she will now convert to a permanent policy and pay only $17,000 per year. She actually is planning on increasing the premium deposits over time so that by the time she is 70 and ready to deal with transition issues, the life insurance will be paid up.
We are seeing more and more of these lately; proof that many high net-worth folks will find that their use for life insurance will continue as they age. The cost will just become more and more uncomfortable unless they plan ahead and at least purchase some with permanence in mind. You might want to advise them of that.