An Insurance Audit Can Save You Plenty

Life insurance is a very flexible and useful tool which can be deployed to meet a variety of needs and goals. As your circumstances change and your estate grows, your life insurance needs also evolve. In addition, new and better products and options become available over time. Frankly, we believe it is important to perform an annual analysis to determine if your existing policies meet your current needs. We feel so strongly about it, we offer a Life Insurance Audit as a flat fee service to make it easy for you to get unbiased, expert advice. In addition, we’ve provided this article to help you realize it may be time to take another look at your coverage and plans.

You Have a Trust Including a Life Insurance Component:

Your trustee has a fiduciary responsibility to make sure the life insurance in your Trust is performing as planned. It is a best practice for trustees to have the policy audited regularly. The reason is that many policies were written when interest rates were higher (6% was considered low, not so long ago!). In addition,life expectancies have been increasing annually thanks to advances in preventative and health care. These factors combined are causing many policies to perform poorly because policies are designed with assumptions about how long you will live and the interest the insurance company can make on your premiums (the fine print explains that the actual policy performance will be defined by those factors, and if certain conditions are not met, the benefits received will be affected). If your policy is not performing as expected, it can cause a loss of cash basis, a reduction or loss of benefits, and could even cause the policy to lapse.That is why you should make sure your trustee has your policy audited regularly.

Life Events:

Did you get married, get divorced, have a child, add another dependent, have a dependent reach independence, start a business, exit a business, retire, or have some other significant life event? If so, your insurance needs have probably changed. Maybe you need more insurance, and maybe you now need less. Maybe it is time to focus your insurance strategy on income continuity, wealth preservation, and tax advantages – rather than guarding against a catastrophic loss. Certainly it is time to examine your options and make a plan that meets your current needs and goals.

Health Events:

Did you quit smoking? Did you know that some policies continue to rate you as a smoker after you quit, just for chewing nicotine gum? Did you know there are other policies which do not? Is long-term care a consideration? Did you have a health issue or diagnosis? Of course, you realize it is best to get insurance prior to an adverse health event, and the best time to forecast your needs may be now.

Policy Triggers:

Some policies have benefits that change over time, or based on certain events. Various insurers may also rate your risk differently, permitting lower costs or better coverage with built-in guarantees. Not all of the scenarios spelled out in the boilerplate of your policy may have been adequately explained at the time of purchase. At least not in plain language everyone can understand, which happens to be our specialty at Absolute Conclusions – making the complicated language of financial services understandable so you can take informed action.

Asset Triggers:

Did you buy or sell a home? How about an income property or business? Has your income or net worth changed significantly in the past few years? Did you receive an inheritance or other financial windfall?

Any and all of these “triggers” indicate that you would likely benefit from an insurance audit. Frankly, we believe it is a best practice to have your needs and coverage audited annually so you can proactively plan for your future needs as well. Therefore, we offer a professional, unbiased analysis for a reasonable flat fee so you can have the peace of mind you deserve.

Make sure you are getting the best of what you need, and not just what your agent had available. Schedule a talk with Mark to determine if a comprehensive policy audit is right for you. Note that a periodic insurance audit may be required for Trusts:

Plan a call with Mark

At Absolute Conclusions, we pride ourselves on staying informed of the best practices and best plans available. Our core goal is to help you create and maintain your legacy. Our independent status enables us to align completely with your interests, and we can also offer fee-based consultations, insurance audits, and reality-checks to provide further peace of mind. Please remember that the buy-sell agreement and funding plan should be reviewed annually, and at any time a significant change in the business size or scope occurs. If you have any questions or feedback on this article, click the Schedule a Call button to set up a no-cost, no-obligation consultation.

4 Steps to Business Succession Planning

Many people find business succession planning confusing, or even intimidating. Few find it fun, which is part of why Absolute Conclusions is here – we see it as a fun and fascinating three dimensional puzzle to be solved. Our passion for helping people create and maintain their legacy demands that we stay on top of our game, and find ways to strip away the jargon and make complex subjects easy to understand. With that in mind, we’ve developed these 4 steps to business succession planning.

1. Decide and agree.You know that you may not want to work forever, and frankly you can’t until we find a way to live forever. Like it or not, you and any partners you have, will eventually exit the business for some reason. Some typical reasons include insolvency, divorce, disability, disagreement, death, and retirement. What happens next? Do beneficiaries become partners? Does the business get sold, and if so, to whom? At what price? On what terms? These things need to be decided and agreed upon, and it is much better and much easier to do it long before an event occurs that requires the action. Planning in advance provides the time to rationally consider the options, and talk through them with your partners, family, and advisors. The first step is to decide and agree on what will happen, and then –

2. Document the decisions in a Buy-Sell agreement. A buy-sell agreement is a key part of the business succession plan, and it is essential to protecting your legacy. Ideally this will be done at the same time as the operating agreement, but this is a must-have for any business. The buy-sell agreement includes the conditions that will result in a sale (often called a trigger event). For example, a trigger event could be a key person becoming unable to work. Another could be they become financially insolvent, etc. The buy-sell agreement defines the trigger events and details what happens next. For example, one partner may purchase another partner’s interest. Or provisions may be made by which employees can purchase and continue the business. The agreement would also include how the value of the business will be calculated, terms of the sale, and more. This helps provide for business continuity and stability. Perhaps more importantly, it helps ensure the financial future for you and your loved ones.

3. Fund the plan. All that planning was great and necessary. However, it is worthless if the money isn’t there to execute the plan. Although a partner may have the net worth, liquid capital is required to execute the buy-sell agreement. It is the responsibility of the business to make sure there are sufficient funds available to implement the agreement and continue the business. Let’s face it, lenders don’t lend to businesses in distress. For them, the disability, insolvency, or exit of a partner puts a business in distress. Funding the plan is not something that can be effectively handled after the fact. It is essential to make provisions to fund the plan from the start. When the business is small, simply establishing a capital reserve may be sufficient. As the business grows, it may become more difficult to maintain sufficient reserves because they may be maintained at the expense of additional growth. Fortunately, there are a variety of options for funding the plan via insurance, as successful people have been doing for generations.

4. Revisit the plan annually. As your business grows and changes, your needs may change and additional opportunities may become available. Your personal situation, goals and desires will also evolve over time. Therefore, we strongly recommend that you review your plan annually or whenever there is a significant change in business or personal strategy. A bit of time with your business partners and advisors will help ensure your plans meet your current needs and goals.

At Absolute Conclusions, we pride ourselves on staying informed of the best practices and best plans available. Our core goal is to help you create and maintain your legacy. Our independent status enables us to align completely with your interests, and we can also offer fee-based consultations, insurance audits, and reality-checks to provide further peace of mind. Please remember that the buy-sell agreement and funding plan should be reviewed annually, and at any time a significant change in the business size or scope occurs. If you have any questions or feedback on this article, click the Schedule a Call button to set up a no-cost, no-obligation consultation.

Please note: This document is intended to provide introductory information on the subject matter. Absolute Conclusions does not provide tax and legal advice. You should consult with independent financial, tax and/or legal professionals before making financial investmentor planning decisions.