Business Succession Planning
Failure to plan for an orderly business succession can result in both monetary losses, and even loss of the business itself. One of the more important aspects of business succession planning is working out the financial pitfalls following the death of the business owner; answering questions like: where will the money come from to pay taxes? Or, if the business is a partnership: where will the money come from to buy out the deceased partner's share?
An ideal solution for the transfer of ownership of closely held corporations or partnerships is a Buy-Sell Agreement. In a Cross-Purchase Buy-Sell Agreement each shareholder/partner buys a life insurance policy on the other party(ies). In the event of death, the respective policy pays an amount that allows the surviving partners/shareholders to purchase the deceased's share of the company. Under an Entity Buy-Sell Agreement, the business entity (the partnership or corporation) agrees to purchase the interests of the individual owners. Policy proceeds or cash values are used to purchase the interests of the owners at death.
The benefits of a Buy-Sell Agreement are:
- Prevents dilution of corporate ownership
- Provides ready liquidity for family or beneficiaries of the deceased who have no interest in participating in the business
- Provides for smooth transfer of assets at a pre-determined and agreed upon value
Insuring Key Employees
In a closely held corporation there are typically one or more individuals who are vital to the success of the business. The loss of a valuable employee could mean financial disaster for the organization. Protecting against this loss plus providing additional benefits to key employees is critical to these types of firms. The Key Person Insurance provides the employer with peace of mind and the protection needed in order to maintain the success of a business in case of the unfortunate loss of a key employee or executive.
The advantages of Key Person Insurance policy are:
- Cover financial losses that may occur from the loss of a key person
- Assure continuity of the business for employees, customers and creditors
- Provide liquidity for finding and training a suitable replacement for that key person
Family and Wealth Protection
Life insurance provides you the peace of mind you only get from knowing that you've protected your loved ones and your business. In case of death, you can ensure that your family and loved ones will be able to maintain a desirable lifestyle, afford an education and avoid asset liquidation.
Life insurance is an essential component to an overall estate plan and can be used to address various financial needs including: income replacement, repaying outstanding debt so that heirs are not burdened, providing liquidity without having to sell off existing assets and paying estate taxes. An unfortunate example of the incredible burden resulting from lack of proper planning is the case of Joe Robbie. Mr. Robbie was a successful businessman and owner of the Miami Dolphins, one of the most valuable franchises in professional sports. At his untimely death, his estate was valued at $100 million, and the estate taxes due to the US Treasury nine months after his death were in excess of $45 million. The family was forced to immediately sell the team at a deeply discounted price. This resulted in tremendous financial and emotional stress and hardship on the family. With the proper estate plan, you can avoid the difficulties such as those experienced by Mr. Robbie's heirs and ensure that everything you've worked so hard to build can be passed to your heirs and loved ones.
There are also many living benefits of life insurance. Universal life insurance combines the security of a permanent death benefit with the potential for strong cash accumulation and savings. You can tap into the cash value to add funds to your education and retirement plan, and even fund a new business venture. By way of example, Walt Disney borrowed money from his life insurance policy after the bank denied him a loan to fund his new business venture, Disneyland. Another notable example is how in 1955 Ray Kroc took over a small Mc Donald's franchise and built it into the most successful fast food operation in the world. During the first eight years of operation however, money was tight, so Kroc borrowed money from his life insurance policy to help cover employee salaries. These are simply two notable examples of the economic benefits derived from an insurance policy during a person's lifetime.
PFG will work closely with you to determine how best to achieve your financial goals and provide for your family's well being.
Whole Life
Whole Life Insurance is for the client looking for long-term coverage and wealth accumulation. Whole Life can be a valuable financial tool as cash value grows on a tax deferred basis and guaranteed rate. This cash value is accessible to the policy owner and can be used to satisfy various needs including retirement, education and other liquidity needs.
Universal Life Insurance
Universal Life Insurance provides clients an affordable and efficient life insurance solution that combines the security of a permanent, guaranteed death benefit with flexibility in premiums to accommodate changing financial circumstances. Universal Life Insurance is ideal for clients who need strong asset growth to help them reach important financial goals such as a comfortable retirement and college funding. It is also an ideal solution for companies who want to offer additional incentives for their key employees by providing company-paid life insurance.
An Indexed UL offers clients the opportunity to invest part of their premiums in various indexes including the S&P 500, the Hang Seng, the EURO STOXX50 and the MSCI Emerging Markets Index, while providing downside protection.
A Survivorship UL offers the opportunity for strong cash accumulation while providing protection on the lives of two individials which can significantly reduce the cost of insurance. It can be ideal for individuals with common goals such as parents or business partners.
Premium Finance
Premium Finance is a unique financial solution that allows high net worth individuals and corporations who need a large amount of life insurance to finance all of their insurance premiums. Often times asset rich clients have a need for life insurance for estate planning or business purposes, but are hesitant to use existing investments to purchase the needed coverage. Typically this hesitation comes not from lack of capital, but rather from the client's reluctance to convert high-performing investment portfolios or business assets into cash. The solution is Premium Finance, which allows clients to purchase the life insurance needed to accomplish their financial goals while keeping high-performing investments in place, and without having to liquidate assets.
PFG is the premier provider of Premium Finance in the international market, and therefore has established relationships with the most prestigious financial institutions and insurance carriers worldwide. As a result, clients have access to the most competitive life insurance products at the most competitive lending rates in the market.
How it works:
Premiums for the insurance policy are paid to the insurance carrier by the lender, while the policy value is used as collateral for the loan. Depending on the type of loan, the loan interest can be paid for by the client or financed. The policy is designed to capitalize on the arbitrage between the crediting rate of a high cash value life insurance policy and the cost of borrowing. Because historically the crediting rate on the cash values of the policy has been greater than the borrowing rate, the loan can be repaid usually in the 12th year while keeping the life insurance policy in force for the rest of the insured's life.
Certain requirements must be met in order to qualify. Clients must meet life insurance underwriting guidelines and must have the necessary net worth and sufficient assets to qualify for the loan.
PFG works closely with clients every step of the way, from designing the insurance policy to maximizing cash accumulation, to ensuring that the loan is approved. Moreover, we work with our clients' advisors in establishing an irrevocable life insurance trust (ILIT) or LLC as the owner of the policy, and once the policy is issued, we monitor it on a yearly basis to ensure it continues to provide the benefits and efficiencies our clients desire.
Term Insurance
Term Life insurance is the simplest form of life insurance designed to provide temporary protection at an affordable cost. Clients have the option of choosing to pay premiums for 10, 15, 20 or 30 years. It is well suited for short-term goals such as life insurance coverage to pay off a loan, or to provide extra life insurance protection during child rearing years.
