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In This Article, I’m Going To Talk About Why Life Insurance Is An Absolute Must For Small Business Partners
You own or operate a small business with a partner.
The thought has crossed your mind, “What would happen if my partner passes away?” What would happen to your business? How would it be sustained if your partner was not there helping you manage the business? If there was no one doing his particular role?
You need to recognize the vast importance of having life insurance. Here, I’ll walk you through the process that you have to pass through in order to do that. If you’re in a small business partnership then it’s important to ensure both partners.
It gives your business the best chance of long-term sustainability. It also gives your partner and yourself an exit strategy. Your families don’t have to become involved in the business if they don’t want to.
NOTE: Would you prefer me to present this information to you in video format? Watch the video below for the complete presentation. Enjoy!
Today’s Topic Overview:
- Disturbing Questions That You Need To Start Asking Yourself
- Case Study Examples
- Top 5 Reasons Why People Buy Life Insurance From A Broker
- Why Get Life Insurance On Small Business Partners?
- The Life Insurance Application Process
- Stories From The Field
- Types Of Life Insurance Products Available For Small Business Partnerships
- Should Business Partners First Secure A Buyout Agreement Or Get Life Insurance?
- How Much Life Insurance Should Small Business Partners Buy?
To begin with let’s talk about some questions that you need to start asking yourself.
These are what I would call disturbing questions. They get to the core of the matter. They show you the importance of life insurance for a small business partnership.
“If my partner suddenly died, what would happen to the business?”
You’re in a plumbing business and you have a co-partner. Both of you run appointments, manage staff, and do other aspects of the business. Your partner dies suddenly. He’s got a wife and three kids who get an income from the business through his work.
Now, because there’s no agreement or life insurance set in motion, the family comes in and begins to manage the business.
They’re interested in continuing what income they can get out of the business. You’re now in the position of doing double the workload. You’re handling the management and the daily activity of the business.
“Do you think that your partner being gone will have an initial negative effect on your business?”
Do you think that your partner’s family (who know nothing about the plumbing business) attempting to manage it will be good for the business? This is a serious question to ask.
This is what will happen if there’s no exit strategy, and no life insurance plan to fund it. Nothing to get your partner’s family out of the business.
There may be conflicting future plans for the business between you, other partners and the family of the deceased.
In many circumstances, the surviving family members don’t have an understanding of how your business is run. What they do have is an understanding of where the money comes from. Many times they feel like their perspective is as valid as that of the deceased partner.
Take, for example, my present business. I run a life insurance company. I talk with clients on a daily basis. Say that I had a partner whose job was to do the same.
If there was no life insurance plan to segment and transfer the business over to the surviving partner in the event of my death, my wife would come in.
She knows nothing about the life insurance business. She does know where the money comes from.
Managing the business would be an act that she would need to do to take care of her family. To continue the lifestyle she’s accustomed to, she would come in and attempt to do so. It’s a natural disposition to make sure that her portion of what she has seen, what she thinks is hers, will continue to come in. But couldn’t that interaction have a negative effect on the survival of the business? And the surviving partner, what happens to them?
Let’s say that you have the relationship with the suppliers and the bank. You’re the one who interacts with them and you pass away. Now they’ve got to deal with the partner with whom they may not have a relationship.
This may make them wary. It may affect suppliers relations with the business. Will they keep on providing parts and services on terms that have already existed? They might be a little resistant to offer the same terms.
How do you think the bank financing your business will act now the partnership is gone? Will they worry that you can’t pay back what they gave you to fund the business?
“How about your customer’s interactions with the business?”
Your partner is the primary salesperson or relationship driver. You’re more of a back office type. Your partner dies. How will the way that your customers view the business change? You may have to bring in somebody who’s familiar with the business to fill the role.
The process of filling that role may take time. You’re going to have to be able to pay what’s necessary to bridge the gap. You will have to bring in a professional to fill in the role that your partner had. You need to have the money set aside to make sure your business stays afloat whilst you do it.
“How will your employees react to your surviving partner dying?”
Many times employees begin to be fearful for their job. They see what happens when a partner dies, how it affects a business in a negative fashion. They may see it firsthand because they’re in the trenches with clients and service and customers.
These are the most disturbing questions to ask. The reason that I did this upfront, at the beginning of this article, is because you need to have these questions in your mind.
Nobody, except the life insurance man, wants to ask you these questions. He understands the importance of life insurance in a partnership business.
He will look at a life insurance plan that will make your business solvent. It will separate your surviving partner’s family from the business so it can run in the most effective way possible. It will protect the business as quickly as possible and keep it alive long term.
If you would like to find out what your coverage might look like, give us a call today for a no obligation quote at (888) 626-0439. You will speak to an expert broker who can provide you with all the information you need to make a decision that is right for you.
Alternatively you can also send us a message using our contact us box on this page and we will be in touch soon with more information.
Case study examples
Expanding a Business
A young woman recently called us looking for a 10 year term insurance plan. She and her partner were looking to expand their business and needed to get a bank loan. But in order to do that the bank had requested they have a 10 year term insurance loan to cover the life of the loan.
As we were discussing the details of the policy, this young woman explained her concern over getting affordable coverage due to her having high blood pressure. She was taking medication to regulate her condition and had heart high blood pressure could cause rate increases.
We were happy to take her application to a number of providers who offered quality coverage to those with the same health condition. She was very happy that were able to find affordable coverage so that she and her business partner could proceed with their bank loan.
Though we can’t guarantee the same outcome for every individual, we have access to a number of providers that allow us to shop for the best value and price. Just because you have a health concern, like high blood pressure, doesn’t necessarily mean you have to pay a high rate.
Increased Financial Concerns
We recently spoke with a middle aged man who was looking to add to his already existing policy due to a promotion at work. He recognized that his financial obligations were going to increase as his income become more significant and he wanted to ensure his wife and kids woul be financially secure should he pass away sooner than expected.
The only concern this client had was that he had a weight problem. His doctor had advised he lose a significant amount of weight and he was concerned with this fact on his health record that he would have to pay a high rate for insurance coverage.
Thankfully we here at Buy Life Insurance for Burial have access to a number of providers, so we are able to shop the best prices to get quality coverage that is affordable for our clients. While we can’t promise coverage for every applicant, we do our best to find coverage for every client that contacts us.
Top 5 reasons why people buy life insurance from a broker
1.Want the best rates
Individuals who are on a budget will appreciate the average price of term insurance, which is generally cheaper than whole life insurance.
2.Wants the most coverage
Not only is term insurance affordable, but it also provides the best amount of coverage per dollar, giving you the most bang for your buck.
3.Wants client-focused service
Brokers are client focused because we are not representing a single product or company. We are not all about the sale of our own service, but rather we focus on what the client needs in regards to goals and budget.
While eliminating bias is not completely possible, bias is certainly reduced when you work with a broker because we shop a number of options to find quality coverage for our clients.
Really working with a broker is all about options. We have a number of providers available to look at when it comes to getting our clients coverage. That ultimately means more options for you.
If the questions and stories above are relevant to you then you can see why it’s obvious that you need life insurance. You need it, not just on yourself, but also on all partners in your business.
Life insurance will give your business the best opportunity to survive. It will protect your clients. It will give the surviving family an equitable buyout plan. This relieves them from the duties of running a business that they may not understand.
It is very simple to set up. You come up with a plan of action, a life insurance plan to fund the payout. This can be done by all the usual ways of purchasing a life insurance plan.
Sometimes this can take a long time. Especially when you are dealing with medical exams, running medical histories, and getting approvals done. If we get an unsatisfactory response back from the first company we look at, we have to shop around.
This whole process takes time. When you apply for life insurance, you don’t have to have a firm number set in stone. You just need to get a rating done.
This is important because, with that, you can go to your attorneys and find out what your options are. You can then begin to craft the amount of coverage after the fact. You can custom tailor the amount of coverage. The amount of funding would be based on what your attorney and your partners agree is necessary to cover the buyout agreement.
Stories from the field
I’d like to share with you a story that demonstrates what Buy Life Insurance for Burial can do for clients who have a significant history of health problems. Even though many people think serious conditions are not insurable, the truth is that is not always the case.
Back in 2013 I was working in Lookout Mountain, Alabama, a place that could only be described as backwoods rural. Gravel roads, small houses, and lots of open spaces.
As I approached my last stop of the day I was greated by a large sign that read: “Any damage done to your person or your property is not the fault of this property owner. The Nights.”
Now usually when I see a threat like this, I turn my car around and go on to the next stop, but for some reason on this day I decided to stick it out. I got out of my car, feeling a little bit of apprehension as I looked toward the house to see a man starting at me from the front porch.
As I approach the house, I called out a hello and asked if he was Mr. Night. He immediately wanted to know why I was there in a less than welcoming response. I explained I had received a request for life insurance information.
He stood and ducked his head inside, calling for Mrs. Night, he I figured out had been the one to request information. When Mrs. Night came out to greet me, Mr. Night quickly left us to talk.
Mrs. Night invited me in and as we began to talk I learned that her previous husband had gotten quality life insurance in place before he died unexpectedly. She expressed to me what a difference the coverage made when it came to the funeral expenses and burial.
She was honest in saying they had very little savings in place and she was concerned that if anything happened to her husband unexpectedly that she would have to go into debt to pay for his final expenses.
The only problem was that her husband had had open heart surgery and the only programs that she could find that would qualify him required a 2 year waiting period. She knew it was unwise to go with a plan that didn’t offer coverage from the first day and I assured her I would do my best to find first day coverage for her husband.
After some searching, I did in fact find coverage the Nights could afford at $20 a month that offered first day, full coverage. It some work to convince Mr. Night to sign, but once the application was submitted and approved, his wife had peace of mind in knowing he had coverage in place.
Three years later I got work that Mr. Night had died. Though it was a sad time for his wife, I knew the importance of the life insurance her husband had in place and how it would releive the financial stress of final expenses.
Had Mrs. Night bone with any other company her husband may have been declined or had to wait a long time for coverage. But we were able to get him something beautiful that day – something important – and help his family have peace of mind.
Mrs. Night had the money she needed to pay for the funeral and burial and she didn’t have to go into debt to do so.
The moral of the story is don’t shoot your insurance agent if they show up at your house!
Two types of life insurance plan
What happens here is that the business purchases a life insurance policy. The business is the beneficiary of the policy. If one of the partners dies, the business can use that death benefit to purchase that partner’s share.
This is only an option when there are multiple partners. There are more than two partners, but it accomplishes the same goal as with a two-partner situation. It provides a cash payout to the surviving partners to purchase those shares.
There are several different kinds of life insurance products that business partners can select.
In order to figure out which plans are going to be best for your company, we will describe the different kinds of plans.
We will include their pros and cons as to why different types of people purchase them.
Term life insurance provides coverage for a set period of time. It’s typically 10, 20, or 30 years. If death occurs within the period of time that the term is in force, the death benefit is paid out.
The downside is that the term life insurance is not permanent. It is not a plan which will always be in effect. If your partner dies after the term of the plan, you will be faced with the same problems that you had originally.
You are going to have to come up with cash outside of a life insurance arrangement, which may be very difficult. If your partner was the key person in the corporation, the company can’t secure financing from a bank to make up the difference.
Term Life Insurance Coverage – 10 Year Term – $100,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $250,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $500,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $1,000,000 in Coverage
ADD PRICE LISTS!
Permanent life insurance is the opposite of term life insurance in the sense that it doesn’t cancel due to age or health. In many cases, we look at funding a business as a permanent problem. If a business is going to last for a long time, we need to have a plan that will be permanent in place.
Partner buyouts are something that will be a problem for the longevity of the life of the business. Permanent insurance is something to seriously consider if it makes sense to the business.
Whole life insurance and universal life insurance have guaranteed premiums. They do not go up. If designed adequately they can pay dividends out and increase the value of the insurance payout over time.
It’s the same with the universal life insurance. They can be custom tailored in such a way that you can increase the value of the death benefit over a period of time.
Rates For $10,000 In Burial Insurance
Rates For $25,000 In Burial Insurance
$150,000 Whole Life Insurance, Life Pay
$250,000 Whole Life Insurance, Life Pay
The downside of permanent life insurance options is that the premiums are much higher than the term insurance. Below you’ll see a chart that shows you a paid-up option. It shows how permanent coverage works with a whole life insurance plan relative to a term insurance plan. However, keep in mind that term insurance only lasts for a period of time, whereas permanent lasts forever after it’s paid off.
Should business partners first secure a buyout agreement or get life insurance?
Many times business partners think that it’s more intelligent to go to their attorney and began the process of crafting an agreement together first. Well, the process can take a long time. There are a lot of fine business details to work out.
That’s why it’s important first to start the process of applying for life insurance and then start getting the agreement done. A life insurance plan can also take a long time. You have to consider all the examinations and paperwork that’s required to apply for the life insurance.
As a life insurance agent, I can’t promise you what price you’re going to get. That determination is made by our underwriters at the life insurance companies. Therefore, it’s important to start the process of applying for life insurance early on.
You can start the agreement paperwork as well, but it’s easier to craft the agreement paperwork once you know what you can qualify for. Know what price points you have available versus waiting a period of time. If you leave the life insurance until later, you might find out that you may not qualify or qualify at a higher price. It’s good to have that information up front when you go into an agreement.
This is a decision which you have to make for yourself. You have to determine a valuation for the company. You have to determine what you and your partners feel that the company is worth. Discuss that arrangement with your attorney and come up with a premium price point that makes sense.
It may or may not be feasible for you to buy an exact amount of coverage that equates to that amount.
However, having some coverage in place to fund a buyout is better than none at all, even if you did have to secure financing to pay off a surviving family member.
The portion that the life insurance covers can make a dramatic difference in reducing that load on the business. It frees up cash flow for business operations. It allows business expansion and other opportunities in the business that make a lot more sense than the actual life insurance does.
One other factor that you may want to consider is how the business will grow over time. It may be prudent to buy more coverage than the amount stipulated in the program. Or, design your agreement to accommodate an increased valuation. You can always buy more life insurance in the future.
Also, you have to consider any future health changes. You may want to consider setting up a strategy to front-load the amount of coverage to accommodate this possible difference.
I hope you have found this information helpful. Most importantly I hope it has impressed upon you the importance of getting life insurance. If you have any remaining questions or would liek to receive a free quote, please get in touch at (888) 626-0439 or send us a message. We hope to speak with you soon!