We recognize and expect changes in the economy, but the uncertainty of those changes calls us to be vigilant in our business continuation plans. The ability to recover quickly after an unexpected event starts with building a policy that is tailored to the circumstances surrounding your business. An annual policy review is a simple way to review your coverage and identify needs.
Life insurance has long been valuable in the business market, and permanent policies can be even more beneficial in uncertain times:
- Guaranteed cash values can help buffer against economic crisis, keeping a company afloat in an emergency.
- Policy loans are not dependent on credit history, and repayments can be scheduled on favorable terms.
- Death benefits from a key employee’s policy may be used to purchase that individual’s share in the company, ensuring stability for the business.
Here are two steps you can take when reviewing your coverage:
1. Look for and analyze any significant changes since the last review.
- Business valuation changes, primarily for businesses in which valuation may include a multiple of earnings. If earnings are dramatically higher, more insurance may be needed so surviving business owners can purchase the decedent’s interest.
- Changes in ownership percentages for any owners. These updates may require realignment of coverages. Recent mergers or acquisitions could also require additional insurance or transfer of existing insurance.
- Changes in the family situation of any owner, including divorce, death, disability or medical conditions. This includes circumstances affecting both the owner and his or her family members.
- Changes in key employees, such as departing or retiring employees. Should an incentive program be designed to attract or retain key employees?
2. Ask about current life insurance coverages:
- Are current policies performing as expected? Lower credited interest rates, reduced dividend schedules or a change to guaranteed insurance charges could put policies in peril, especially universal life coverages.
- Have the policies been borrowed against?
- Are beneficiary designations still accurate and appropriate?
- For life insurance owned by the employer, is the employer attaching Form 8925 annually to its income tax return so the death proceeds will not be taxable income?
Don’t hesitate to contact your life insurance agent about a review of your business life insurance portfolio; you can help ensure your business remains adequately protected.
