What follows is an abbreviated version of original blog content. Read the complete article here.
Editor's Note: This blog is the second in a series involving several issues that emanate from the decision to sell a closely-held business, most of which provide opportunities for you to develop some serious business. If your practice involves retirement and/or estate planning for owners of such firms (or you would like it to), it is impossible to do it effectively without knowing the value of the business. InsMark has formed a joint venture with a cloud-based business valuation firm named BizEquity to form the InsMark Business Valuator.
Most business valuations cost upward of $8,000 - $10,000. The InsMark Business Valuator (powered by BizEquity) will do it for $350 ($150 if you purchase a package of 20 valuations.)
Review a recording of the one-hour webinar on the InsMark Business Valuator (powered by BizEquity) on the InsMark YouTube Channel.
Review Blog #41: If We Sell Our Business, Can We Afford to Retire?
This current Blog features a solution regarding life insurance coverage on the owner of the business where the InsMark Business Valuator has detected a $1,000,000 loss to the firm should the owner die.In the blog, we determined that George and Marie Grove, age 65 and 60, could maintain their current level of net worth (approximately $10 million) while ensuring after tax retirement cash flow of $440,000 a year indexed at 3.00% as an inflation hedge.
Key Executive Coverage
(Business-Owned or Personally-Owned?)
George and Marie believe the business will be hurt financially should George die prior to selling it in five years. The InsMark Business Valuator identifies this loss to the business at $1,000,000. Click here http://insmarkblog.com/downloads/blog-42-Acme-Ford-Very-Vulnerable-To-Departure-of-Owner.pdf to view the entire report to see the comprehensiveness of the evaluation.
The easy solution is to indemnify the business against the loss of George by having the business purchase $1,000,000 of life insurance on him. The evaluation should also take into account that George needs to replace his income for Marie's benefit. One way to meet the cash needs of the business and the income needs of Marie is to have the firm own a life insurance policy on George large enough where $1,000,000 of the death benefit offsets the reduced value of the firm due to George's death, and the balance is used to fund a salary continuation benefit for Marie.
Is there a way to coordinate those two goals with, let's say, $2,000,000 of coverage? What kind? Term insurance for five years? Is there a place for a permanent policy?
The best way involves the personal purchase of permanent life insurance.
Alternate Key Executive Insurance Technique
Following are the steps for implementing this arrangement:
- George purchases the life insurance policy personally with Marie as beneficiary. The face amount of the policy is $2,000,000, $1,000,000 of which reflects the loss to the firm should he die prior to the sale of the business.
- If George dies prior to the sale of the business, Marie collects the life insurance proceeds, and although the LLC has lost $1,000,000 in valuation through the death of George (as documented by the InsMark Business Valuator), Marie has the $1,000,000 of the life insurance in a tax free life insurance death benefit to offset the loss.
George and Marie have personal access to the policy's loan values for tax free cash flow during retirement years.
We purchased a $2,000,000 policy. It is a max-funded Indexed Universal Life policy with five premiums of $184,000. Click here http://insmarkblog.com/downloads/blog-42-George-Groves-Illustration.pdf to review the Illustration of Values of the policy from the InsMark Illustration System.
There is no other planning software that can accomplish the analysis in Blogs #41 and #42 other than the combination of the InsMark Business Valuator (powered by BizEquity) and Wealthy and Wise.
For information about the InsMark Business Valuator (powered by BizEquity) or licensing information regarding Wealthy and Wise and the InsMark Illustration System, contact Julie Nayeri at firstname.lastname@example.org or 888-InsMark (467-6275). Institutional inquiries should be directed to David Grant, Senior Vice President - Sales, at email@example.com or 925-543-0513. For the best life insurance carrier and appropriate product selection, contact the Ash Brokerage nationwide Life Team at (800) 589-3000.