Life insurance should not be a “set it and forget it” proposition. From the realization that losing a key employee could put your company’s future at risk to the birth of your first child, there are many events that should prompt an evaluation of your current life insurance portfolio to make sure it aligns with changes to your business or personal circumstances.
The time to address such events and their effect on your insurance planning should occur when these changes arise. Taking action quickly can help ensure the best protection is put in place for your family and legacy over the long term.
Contact Synthesis Life to set up a consultation to review your current life insurance.
If you own all or a portion of a business with partners, employees and/or family members, there are two primary areas of consideration that need to be addressed: Buy/sell agreements and key person insurance.
According to Patrick Johnson, founder of Synthesis Life Insurance, there is often confusion between these two scenarios and not enough thought invested into what will happen if a partner or key employee dies or is incapacitated. It is critical to understand the purpose of both buy/sell agreements and key person insurance in order to protect your company with proper coverage.
- Buy/Sell Agreement: The death of a partner/owner can yield unexpected and unintended consequences that are difficult to unwind if not thought through in advance. A buy/sell agreement establishes the ownership structure of a company upon the death of one of the partners. In most cases, the default setting without proper planning is for the deceased person’s stock to go to the widow or widower of the deceased. So, in this scenario, the surviving partner ends up in business with the deceased business partner’s spouse.
Proper buy/sell planning can prevent this situation from happening; and, life insurance can be used as a funding mechanism to allow the surviving partner to purchase the deceased partner’s stock from the widow or widower. By arranging this type of buy/sell agreement in advance, life insurance can play a significant role in helping transform a potentially stressful and unfortunate scenario into a positive outcome for all parties involved.
- Key Person Insurance: Just as the name suggests, this type of policy covers a key employee within an organization, wherein if that person dies, the life insurance death benefits go to the company to cover the costs of replacing that person. However, if key person insurance is not put in place or structured properly, the organization could face significant and unnecessary logistical challenges which a simple life insurance policy could easily assuage.
“Business succession planning is a critical issue for every organization; and, good planning requires detailed analysis,” said Johnson. “Choosing an experienced financial planner who understands the nuances of these types of policies is vitally important when it comes to protecting the interests of the company, business partners and the spouse.”
Modifications to Family Dynamics
There are a multitude of things that change in one’s personal life, each with its own set of challenges. The following examples of those changes trigger an excellent opportunity to review and perhaps modify a life insurance portfolio so the coverage fits your current needs:
- Buying a New Home: Whether you are a first-time homebuyer or moving into a larger residence to accommodate a growing family, purchasing a home is a major financial commitment. Should something happen to you or your spouse, a life insurance policy can provide your family with coverage to either pay off the mortgage or maintain monthly payments.
- Education: Paying for a child’s college education is no small expense. So, you may want to consider a life insurance policy that will ensure your children have access to the education you have always intended to provide for them, should something happen to you.
- Marriage: Do you and/or your spouse have life insurance policies? One of the first steps newlyweds should take upon saying “I do” is to put safeguards in place, so both spouses are financially protected in the case of an untimely death or a life altering disability. It’s also important to update beneficiary information on any existing life insurance policies.
- Divorce: You may not think you need to worry about life insurance in the unfortunate situation of a divorce; but, that is not necessarily true. A review of your life insurance policy subsequent to divorce is often appropriate, especially to make sure any beneficiary designations align with your new circumstances. In addition, divorce decrees often require life insurance be in force in the event of the husband or wife’s premature death.
- Having a Child: This is perhaps the most obvious family financial planning scenario, which necessitates a review of your life insurance portfolio. Making sure you have arranged for adequate coverage once a new baby – and significant financial need – enters the family dynamic is the most fundamental step to take when evaluating family finances.
“There is more than one way to make sure your family is properly cared for, so don’t assume that a single life insurance policy will cover all of your needs. An experienced life insurance broker can break down the different options available to you,” said Johnson.
Duration of the Policy
If you have not reviewed your policy with a life insurance professional recently, then do not delay. You might be pleasantly surprised as to the outcome – from new coverage options to reduced rates.
New Pricing: If you have had your policy more than five years, you may be paying too much. “To accommodate for the fact that people are living longer, actuarial tables were adjusted, which subsequently led to a decrease in life insurance rates. So, many people are unknowingly paying more for their life insurance than necessary,” said Johnson. “It is worth taking time to review your existing policy or policies with a professional to see if there is a pricing adjustment that can be made in your favor.”
Captive Agent Versus Broker: Captive agents, who are employees of larger insurance companies only offer the policies of the companies they represent. These policies are usually more expensive than policies offered through a broker.
“The Synthesis Life team typically saves our clients between 20 and 40 percent on premiums,” said Johnson. “If you purchased your policy through a captive agent, you are likely paying more than you need to and would be well-served to have your portfolio reviewed by one of our agents.”
Life changes do not need to negatively impact your family or legacy. With some solid planning and the insight of a professional life insurance broker, you can avoid the bad outcomes of limited planning and ensure your family is cared for.