Case Example Using Term Insurance
By Thomas J. Perrone, CLU, CIC
This was a situation where the company needed protection but wasn’t ready to purchase permanent insurance, even though the situation called for it. However, the term insurance gave them what they wanted at the time and gave them the needed protection.
Scenario:
A thriving business, comprising three partners—a relationship builder, an idea generator, and a product engineer—experienced remarkable sales growth within a few years. However, a potential challenge arose regarding ownership transfer upon a partner’s death, as all partners shared familial ties.
To mitigate this concern, a comprehensive stock redemption program was devised and funded through a term insurance policy with a premium exceeding $60,000. This strategic approach enabled the business to navigate ownership transfer complexities and ensure the continuity of its operations.
Through the years, parts of the term insurance has been converted, and the company is paying about $125,000 in insurance premium to fund their liabilities and commitment.
The case was developed through a relationship i had with one of the owners, through an introduction.
Lesson:
Even though this was a start up and a young company, if I has assumed it did not have the cash flow, I would have lost out on all the great potential. Don’t assume anything, but let your client tell you what they want and why.
THE WHY:
There was a past history of the one of the current partners where their family member was part of a company where the partner died. No planning was done, so the deceased partners family became the new partners. This was not pretty, and the business ended up in chaos. Obviously, a motivating factor for the current owner to have a good Buy and Sell Agreement where it was funded
If you are an advisor who is working with business owners or wants to develop a business market segment in your practice, we should talk. We offer great opportunities working with our organization and deep backup.
Thomas J. Perrone, CLU, CIC
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