23 January 2014 0 Comments

The Business Insurance Review

corporate insuranceIn my last entry I discussed a time table for reviewing personal life insurance in a family setting.  I stated that a review should be planned every 5 years, or more frequently if certain changes have occurred.  Now, for the need for reviewing business life insurance:

Here, I’m talking about life insurance that should concern the owners of businesses or professional practices.  So, if that doesn’t include you, take a break!  I’ll be back next time with some information that will interest you.  However, if you do fall into the above category and are saying, “What business insurance?” that’s where I need to start.

The two most common categories of business life insurance are:

  • Insurance to fund a buy and sell or stock redemption agreement.
  • Key employee life insurance.

If you are a sole proprietor or a sole stockholder of a closely held corporation, you probably don’t have such an agreement and therefore no life insurance is required for this purpose.  This is unless you have entered into a buy and sell agreement with another person:  relative, key employee or other business.

Life Insurance used for funding a buy and sell agreement needs to be reviewed annually to determine if the amount is keeping up with the value of the business and with the amount of insurance defined in your agreement.  You will also want to occasionally review the type of insurance used.  You may have started with term insurance because that’s all you could afford at the time, or you planned to sell the business.  If the plan to sell has been postponed, you may now want to consider permanent insurance.  If one or more of the owners is reaching age 55+ it may make sense to convert term especially if that person’s health has deteriorated.

Key Employee insurance should be reviewed to be certain that the correct employees are being covered.  It is possible that a currently insured employee may no longer be as instrumental to the firm and another, who is not insured, has moved into a position of financial importance.  Probably, about every three years is sufficient for this type of review.

Next, I’ll have some cautions for you when your insurance is reviewed.

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