Key Man for a small business

[wcShaver]

Any help will be appreciated on this question:

Is some form of Key Man coverage appropriate for a small business?
I'm talking about a two-person design studio. What is the best way for the business to be protected if one of the persons dies?

I'm assuming it would be a term policy...First to die? Multi-life term?
What kind of policy would you recommend?

Many thanks!

wcShaver

 

[Agent Jeff]

I guess it would depend on how long the man would be key. If he were key until age 100 (and the business will need liquidity until then) then you might want permanent insurance like WL or UL. If Mr Key is planning to retire at a normal age (or else work until 100 and the business is planning to build up a succession fund or else his skills will decline to make him not-so-key or else a replacement will come along to make him irrelevent) then the permanent insurance would be a waste of $$$ and the firm should be getting term insurance.

 

[wcShaver]

I guess it would depend on how long the man would be key. If he were key until age 100 (and the business will need liquidity until then) then you might want permanent insurance like WL or UL. If Mr Key is planning to retire at a normal age (or else work until 100 and the business is planning to build up a succession fund or else his skills will decline to make him not-so-key or else a replacement will come along to make him irrelevent) then the permanent insurance would be a waste of $$$ and the firm should be getting term insurance.

Thanks AJ. This helps!

wcShaver

 

[Newby]

Any help will be appreciated on this question:

Is some form of Key Man coverage appropriate for a small business?
I'm talking about a two-person design studio. What is the best way for the business to be protected if one of the persons dies?

I'm assuming it would be a term policy...First to die? Multi-life term?
What kind of policy would you recommend?

Many thanks!

wcShaver

I was the owner of a key man policy some years ago. It was whole-life.

The Agent screwed us over good too. Started out as $500,000 on preferred rates. He camed back 5-years later and churned it for $2,000,000 on standard rates. When I left the company a year later...the $50,000 cash value that had previously built up had somehow disappeared.

I've learned a lot about insurance since then.

 

[wcShaver]

Experience is a dear teacher!

I was the owner of a key man policy some years ago. It was whole-life.

The Agent screwed us over good too. Started out as $500,000 on preferred rates. He camed back 5-years later and churned it for $2,000,000 on standard rates. When I left the company a year later...the $50,000 cash value that had previously built up had somehow disappeared.

I've learned a lot about insurance since then.

Whole Life just doesn't seem to make sense for a key person policy.
Am I wrong? Can anyone offer a rationale for it?

wcShaver

 

[James]

Re: Experience is a dear teacher!

Whole Life just doesn't seem to make sense for a key person policy.
Am I wrong? Can anyone offer a rationale for it?

wcShaver

The Cash Value is not an issue under group regulations.

 

[slushhhpuppie]

Don't overthink Key Man Insurance (in a two person firm, however, I would do a Cross Purchase design).

Owner A buys 30 year guaranteed level term on Owner B's life.

Owner B does the same.

The firm pays the premium.

The firm is the beneficiary.

Sometimes I add an ROP rider, business owners LOVE the idea of getting their $$ back.

 

[James]

Don't overthink Key Man Insurance (in a two person firm, however, I would do a Cross Purchase design).

Owner A buys 30 year guaranteed level term on Owner B's life.

Owner B does the same.

The firm pays the premium.

The firm is the beneficiary.

Sometimes I add an ROP rider, business owners LOVE the idea of getting their $$ back.

So basically one family gets the short end of the deal?

 

[somarco]

So basically one family gets the short end of the deal?

How do you figure that?

 

[Newby]

So basically one family gets the short end of the deal?

The whole intent of the plan is to protect the surviving partner from becomming business partners with his (deceased) partner's wife or kids who would probably be dead weight.

The partner gets the insurance proceeds, buys the other half of the business from the wife or kids, and owns his business 100%

Set up properly it protects everybody.

I agree it should usually be term coverage. But there are exceptions to everything.