Key Man Life Insurance: What Is It and Who Needs It?

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Often, the difference between successful and unsuccessful businesses can come down to the determination and vision, as well as financial backing, of primary individuals within the company. These individuals become key to the success of the company, as a whole. But, what happens if that person suddenly and unexpectedly dies? A crew without a captain will sail off course, if they aren’t unified in a plan of succession.

Morbid as it may be, it is a fact of life and an unavoidable topic for businesses. Although you can never replace a “key man” you can propel their life’s work to greater heights through insured financial support and agreed-upon courses of action. Still, none of this will miraculously occur without careful planning and frank discussions with all invested parties. Let’s explore some of the FAQs of this type of insurance to see if your business is a likely candidate and what steps you can begin to take to secure your legacy.

Which Businesses Benefit From This Kind of Coverage?

By and large, small and developing businesses are the most likely candidates, as much of their revenue may be tied to their growth and expansion, whereas established businesses may have insulated themselves for the potential of a key man loss. Small business models often rely on re-investment, both financially and individually as part of their winning strategy. They are dependent on certain individuals and their contributions to make the machine operate correctly.

How Does the Coverage Work and How Much Is Needed?

Just like most insurance, a policy is acquired, the premium is paid and, if the policyholder passes, the company collects and is hopefully given a lifeline to manage the loss of their key person. Which brings us to the question of how much insurance is needed. For most businesses, the worth of a key man needs to be assessed, based on how much they add to the company, as a whole. Therefore, the more key they are, the more coverage the company should purchase. And don’t just consider what they bring to the company, but what the company would need to survive, if this person was suddenly lost. Overall business debt, investors’ returns and employee retention are some of the most common concerns and questions businesses purchasing this insurance will discuss.

What Are the Potential Drawbacks?

Overall, key man life insurance is an excellent safety net for smaller businesses, but there are some potential disadvantages to be considered. or instance, premiums aren’t tax deductible and, when a key person passes, creditors could make a claim to the premium pay out. In addition, if a key man leaves a business, their coverage can’t travel to their new business. However, there are some options becoming available to alleviate the potential of wasted premium payments. Talk to an agent today to see what your business’ options might look like.

Key man insurance is an excellent way to safeguard your small or medium-sized business from the catastrophic loss of a vital member of the business. It may be something that people avoid discussing because of the sensitive nature of the decisions, but it is much less comfortable or possible, when an actual loss occurs. Have these discussions and make rational decisions when all parties can contribute and develop a plan for the near and distant future of your company.

11 Things You Should Consider Before Purchasing Life Insurance

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For most American families, purchasing life insurance is an important financial purchase. Upon the named insured’s death, the beneficiaries will receive a death benefit that will, hopefully, ensure their financial security for years to come. With over 2,000 life insurance companies to choose from, and a myriad of policies to sift through, choosing the right coverage can prove to be a daunting task. With that in mind, we’ve put together some tips to ensure you get the best value for your money.

1) Evaluate Your Insurance Needs

Most consumers are under the impression they only need life insurance if they have dependents. The truth is, most of us stand to benefit from owning a life insurance policy. Whether you’re young and single, the primary breadwinner, or a stay-at-home mom, you should consider all the facts before making such an important decision. If you’re unsure, meet with an insurance agent. He or she can assist you in evaluating both current and future needs and provide you with the information necessary to make a decision that helps you rest easy at night.

2) Take the Time to Really Consider How Much Coverage You Need

How many individuals depend on you financially? Are you the primary source of income for your family? If you’re a stay-at-home-mom, what does the family depend upon you for from day-to-day? What does your family’s financial portfolio currently look like? How will your loved ones pay for final expenses and outstanding debts upon your death? These are all questions you should consider when determining how much coverage you need.

3) If You Have a Current Life Insurance Policy, Assess it Carefully

Do you currently have a life insurance policy through your employer? Or perhaps your parents purchased one for you when you were a child? Speak with your agent first before canceling anything. There may be an option to change your policy to fit your current needs. Or, it could have hidden coverage that adds significant value to your portfolio.

4) Term vs Permanent

There are currently two basic types of life insurance: term insurance and permanent insurance. A term policy typically offers you more coverage for a lower premium. Coverage is offered for a set time period and the policy does not build up cash value. Permanent policies come with a higher price tag, but remain in place for as long as premiums are paid. They also build up cash value, which can be borrowed against at any time. Each policy has its own set of pros and cons that should be considered carefully before purchasing.

5) Evaluate the Future of Your Policy Before Purchasing

When evaluating potential policies, ask your agent to generate a year-to-year display of values and benefits for each. How quickly does the cash value grow? Does one beat out the other over time? These comparisons will assist you in determining which policy offers the most value for your dollar.

6) Discuss Your Rider Options

Most policies offer additional coverage in the form of riders. Some offer access to your death benefit before you die, while another allows you to use the policy’s cash value to pay for long-term care expenses. When considering policy options, be sure to inquire about these riders, as many are very low in cost compared to the benefit they provide.

7) Get to Know the Companies You’re Considering

When applying for a policy, you’ll be asked several questions regarding your health. It only makes sense then, that you should do the same. Research the companies you’re considering. How financially stable are they? How long have they been in business? Hopefully your insurance policy won’t be needed for quite some time, so it’s important that you partner with a company that is in it for the long haul. A.M. Best is a great resource, as is your state insurance department.

8) Understand the Policy Before Purchasing

It’s important that you read the fine print before signing on the dotted line. Are there certain instances where death benefits can be denied? If so, what are they? Are premiums level, or do they vary from year to year? How long before cash value starts to build? What portion of the benefits or premiums isn’t guaranteed? Meet with your agent to clear up any confusion before making your final purchase.

9) Consider Your Beneficiary Carefully

Choosing a beneficiary sounds simple, right? While it’s pretty straightforward most of the time, you do want to consider it carefully, as there are instances where the wording could result in unexpected tax or legal issues. Check out our blog Tips for Choosing a Life Insurance Beneficiary for some helpful advice.

10) If You’re Turned Down for a Policy, Don’t Give Up

Don’t get discouraged if you’re turned down for a policy; there are plenty of other options out there. In fact, the Vista Life team specializes in finding a policy for consumers who’ve been turned down in the past. While there are some instances where an individual is uninsurable, this is not the norm.

11) Review Your Policy Every Few Years

Life happens and family dynamics change. If you’ve had any major changes occur, meet with your agent to discuss. This will help ensure the policy serves it’s purpose should the unexpected occur.

Tips for Choosing a Life Insurance Beneficiary

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As you probably already know, there are multiple steps to purchasing a life insurance policy. After obtaining quotes and selecting the policy and coverage that’s right for your family, you’ll be asked to answer some medical questions and possibly undergo a medical exam. During the application process, you’ll also be required to select a beneficiary for your new policy. While this is typically pretty straightforward, there are several potential financial, tax-related, and legal issues that could emerge if your beneficiaries aren’t named properly.

To avoid these potential complications, it’s important that you carefully consider who your beneficiary should be. If this is a decision you’re struggling with, the following advice should help clear up any questions.

But first, let’s start with the basics.

Beneficiary Basics

First, it’s important to know that there are two basic types of life insurance beneficiaries.

  1. Primary beneficiary: A primary beneficiary is the first person(s) to receive the death benefit should the insured die. If the primary beneficiary dies before the insured, the policy will automatically defer to the contingent beneficiary.
  2. Contingent beneficiary: Also known as the secondary beneficiary, the contingent beneficiary is eligible for the death benefit if the primary dies before the named insured.

To avoid any complications and ensure the death benefit payout process goes smoothly, it’s recommended that you select both a primary and contingent beneficiary when setting up your policy.

In addition to the two types of beneficiaries, there are two classes to consider as well.

  1. Revocable beneficiaries: With a revocable beneficiary, the policy owner has the right to modify the beneficiary designation without the preceding beneficiary’s consent.
  2. Irrevocable beneficiaries: Under this class, the policy owner cannot modify the beneficiary designation without written consent by the original beneficiary.

Due to the potential legal complications that could arise from opting for an irrevocable beneficiary, the most straightforward option is revocable.

Now that you have a better understanding of the types of beneficiaries, how do you choose? You can name any of the following:

  • People: This could be a family member, legal guardian, or even a business partner.
  • Estate: If you choose your estate as the beneficiary, the death benefit will go to the Executor of the estate. It’s important to note that your estate can only be named if you’ve drawn up a last will and testament. If this is the path you’re considering, take a moment to discuss any tax implications with your agent, financial advisor, or accountant.
    Trusts: If you have a trust already set up, naming your trust is an option.
  • Charity: Charities can be named as either the primary or contingent beneficiary.

Many policy owners have more than one beneficiary they would like named on their policy. There are two approaches you can take in this situation: per stirpes or per capita.

Per stirpes: Under this option, the death benefit would be divided equally among the named beneficiaries and/or their surviving children. For example: You designate your two daughters, Allison and Nicole, as beneficiaries of the policy. Allison dies before you, and you pass away next. Nicole would receive 50% of the proceeds and Allison’s surviving children would receive equal amounts of the remaining 50%.
Per capita: Under the per capita option, the death benefit would be equally divided amongst all the surviving beneficiaries in the lineage line. For example: Using the above scenario, assume Allison had three children and Nicole had none, when you passed away. The proceeds would be divided equally between Allison’s three children and Nicole. Each beneficiary would receive one-fourth of the insurance death benefit.

The Dos and Don’ts of Life Insurance Beneficiary Designation

The following are a few tips to keep in mind regarding your policy’s beneficiary.

  • DO consider who has the most to lose financially when naming your beneficiaries.
  • DO name both a primary and secondary beneficiary.
  • DO designate proceeds to be paid out in percentages rather than a fixed dollar amount.
  • DO make sure your will and designations aren’t conflicting.
  • DO notify anyone who has been named as a beneficiary.
  • DO consider the language of your policy to ensure your wishes are properly carried out.
  • DO review your policy every few years.
  • DO make necessary amendments to your policy when a major life event occurs. For example: marriage, divorce, birth, or death.
  • DO discuss any tax ramifications with an agent or advisor before listing your estate as the beneficiary.
  • DON’T make generalizations, such as “spouse” or “children.” Doing so could lead to complications during pay-out time and leave your grieving family to define your intentions. Be specific.
  • DON’T name a creditor as a policy beneficiary.
  • DON’T name minors unless a guardian has been designated for them.
  • DON’T complicate things. If you have a separate named insured, owner, and beneficiary, this could result in higher tax payout.

If you’re at the beneficiary consideration stage of the process, you’ve made a great deal of important financial decisions to ensure your family is protected. It would be a shame if your intentions weren’t carried out, simply because you overlooked an important detail. Or for your family to be embroiled in a legal or tax battle that could have been avoided. Discuss your options with an experienced agent before signing on the dotted line; and don’t forget to review your policy every few years.

The Growing Importance of Life Insurance for the Modern Woman

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Women have redefined their roles both in the workplace and at home. Whether working as a stay-at-home mom or outside the home as a top executive, our value has increased exponentially over the last decade. We’re running businesses, holding political positions, and homeschooling our children, all while making sure the household runs smoothly. In fact, a recent Bureau of Labor Statistics study reveal that over 40% of mothers in the U.S. are now the breadwinners of the family. Yet, despite our ever-growing responsibilities, 1 in 3 women are underinsured for life insurance. Only 52% have life insurance at all, while those that are insured have 31% less coverage than men.

It’s important for us to remember the financial responsibility we have to our families and really consider how they would be affected should something happen. Regardless of your career choice, marital status, or annual income, life insurance is critical to ensuring our family’s financial health, long-term.

Still not convinced? Let’s consider a few scenarios and how life insurance could benefit women, regardless of their personal situation.

Single Women

It’s easy to assume there’s no need for life insurance when you’re single with no children. Life is seemingly carefree and no one would be affected financially if something were to happen to you, right? Well, that’s not always the case. As we age, we face the difficulties of caring for family members who’re no longer able to care for themselves. Stop and consider what would happen to them in the event of your untimely death. Where would they go? Who would care for them? Where would the funds come from? Who will pay for your burial expenses?

Life insurance can also prove its value to single women who have incurred debt, particularly if you carry a loan with a co-signer. Typically, when you die, the executor of your estate is able to sell off your property to cover any outstanding loans, and the rest is forgiven. But if you have a co-signed loan, the entire debt transfers to the co-signer, often putting them in a difficult financial bind.

If neither of these scenarios describe your situation, you might be okay without life insurance. Keep in mind, however, that life insurance premiums are, on the average, cheaper for women, but also increase in price, as you get older.

Stay-at-Home Moms

If you’re a stay-at-home mom, you know how hard you work. Most consumers purchase life insurance to replace a family member’s income but, what about all the hours you put in, day in and day out? You’re critical to your family 24/7, providing love and support that’s almost impossible to put a price tag on. While it’s difficult to think about, it’s important to consider how your spouse would make it all work should the worst-case scenario occur. A life insurance policy could provide your partner the financial support and security needed to get through this difficult time. He or she could use those funds to take a leave of absence from work, hire a nanny, or pay for a cleaning service – whatever’s necessary to help the household get back to some semblance of normalcy.

Single Moms

Most single moms are the ones primarily responsible for their children. Life insurance offers the peace of mind of knowing your children are cared for financially, should you die prematurely. It can provide the funds needed for childcare, college, and all the others events that will occur on the path to adulthood.

Working Women

As our day-to-day expenses become increasingly higher, many families have come to depend on two incomes. How would your family be impacted should one of those salaries disappear suddenly? A life policy can help ensure your family has the financial support needed, as they adjust to this unexpected new life.

Business Owners

Women now represent more than 30% of small business owners. As an entrepreneur, you’re now responsible for the financial well-being of your staff, as well as your family. Investing in a life insurance policy is a great way to ensure payroll and other operating expenses are covered while your estate is being settled. Many business owners also use it as a tool for organizing buy-sell agreements and as benefits for valued employees.

What Can You Do Now?

If any of these situations sound familiar to you, you might want to consider a life insurance policy. Many find the process intimidating, unsure of what type of policy is the best fit or how much coverage is enough. While most quotes can be completed online nowadays, they don’t provide answers to those burning questions. Find an agent that you can trust to offer guidance and support throughout the process. The world isn’t going to crumble if you end up with the wrong policy or you forget to add that rider that would have offered additional coverage. But it’s best to be educated on your options, so you secure a policy with the best coverage, for the best price.

No one wants to fixate on the doom and gloom of life, which is why proper planning for the future is so important. It helps alleviate present day concerns by setting the ball in motion for financial security in the future. Equally, the ones left behind are able to rest a little easier during such a trying time. And, with so many more women becoming integral parts of a family’s financial structure, life insurance has become critical for both men and women. Is your family covered? Ask the right questions and start making a plan today.

6 Items to Consider About Life Insurance Over 50

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It’s a common misconception that life insurance is only necessary for young, married adults with small children. The reality is, life insurance policies can prove beneficial at any age. As our lifespan continues to grow, people are having children later in life, further increasing the need for a policy that can take you to retirement age and beyond.

Are you over 50 and considering a life insurance policy? If so, read on for some expert advice to consider as you navigate through the decision-making process.

1) Do I Really Need Life Insurance at This Age?

This is a question only you can answer. Take a moment to consider who might be affected by your death. Who relies on you financially and how far into the future will they require your assistance? If you’re currently working, how would the loss of your income affect your family if something were to happen? What assets would your spouse or children have access to and what kind of debt are you still working to pay off?

Would a death benefit be helpful in covering the following once you’re gone:

Funeral costs –The average funeral costs more than $7,000. Have you set aside a portion of your budget to cover these expenses? Losing a loved one is emotionally taxing; adding the financial stress of paying for a funeral makes the process that much more difficult.

Medical bills –If your death is a result of an illness, you could leave behind a mountain of medical bills. An insurance policy could help relieve that pressure. When comparing policies and rates, ask your agent about the acceleration of death benefit rider. This is offered as a rider on many policies today and could help alleviate the financial pressures of an illness before passing on.

Estate taxes –Life insurance policies can help cover the costs associated with settling your estate.

Funding an education or providing a legacy – Do you have a loved one you plan on helping through college? Many consumers invest in a life insurance policy to ensure their family’s plan for a higher education isn’t derailed early. Policies are also purchased to ensure a donation is made in their honor to their favorite cause or charity.

2) How Much Coverage Should I Purchase?

While there’s no way to determine exactly how much life insurance your family will need, there are a few formulas you can utilize to determine the face value of your policy. Prior to shopping for life insurance, it’s important to consider your current financial, as well as your long and short-term goals. If your primary goal is to cover funeral expenses, you’ll require a lot less protection than the individual with a grandchild’s education to pay for or a mortgage to pay off.

3) What Kind of Policy Is Best?

There are multiple types of policies available, each with their own set of pros and cons. First, you’ll need to consider the two main types of plans and how each would help in accomplishing your life insurance goals.

Term insurance – Term policies offer a guaranteed death benefit of a specified amount, valid until the end of the policy term or until you stop paying your premiums. There is no cash value associated with term policies.

Permanent insurance – This works as a sort of savings account. A portion of your paid premium goes towards the policy’s death benefit, while the rest adds cash value. There are a number of different permanent policies available, so it’s best to speak with an insurance professional or your financial adviser before making your selection.

4) What About the Medical Exam?

The underwriting process varies from policy to policy. Some policies require you to submit blood work and undergo a medical exam, while others simply require the answers to a few questions. Once you’ve determined the amount of coverage and type of policy you need, your agent should be able to provide a clearer picture as to what will be required of you.

5) How Do I Choose the Right Company?

No matter what age you decide to purchase a life insurance policy, it’s important you select a company that will be there for you long-term. When considering your options, research the ratings of each company. A.M. Best Rating Services and Moody’s both offer a financial analysis rating that can help in identifying which company is the most stable. If you use more than one rating source, pay close attention to their rating system, as they do vary from site to site.

In addition to their financial stability, conduct some research to understand the organization’s history. A company that’s been around since the 1800’s has a proven track record that far exceeds one established 20 years ago. Additionally, visit the National Association of Insurance Commissioners’ searchable database to view any complaints lodged against the insurance company. This can provide invaluable insight into how an enterprise does business and how they might treat you or your family in the future.

6) Where do I start?

While much of the information you need is available online, it’s a good idea to discuss your family’s unique situation with an agent before making any purchases. They can help ensure you purchase the right amount of life insurance, without going overboard, and that you get the most bang for your buck. Navigating through the process is generally quick and painless; the hard part is getting started.

What is an Indexed Universal Life Insurance Policy?

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If you’ve been reading our posts, you, hopefully, understand the difference between term and permanent life insurance. Each has their own pros and cons that should be considered when deciding how to spend your hard-earned dollars. If you think permanent insurance is the route your family should take, there are quite a few options you should consider.

For many, understanding life insurance is confusing. The language is complicated and the various options make it that much more daunting. Once you understand the concepts behind it though, it’s fairly easy to understand. Today, we wanted to delve a little deeper into our favorite Universal Life policy – the Indexed UL, along with its pros and cons.

Let’s start with a brief definition of Universal Life.

What is Universal Life Insurance?

Universal life insurance gained traction in the late 70s and early 80s. Consumers were frustrated with the small returns on their Whole Life policies and began removing their cash value to explore other investment options. Rather than restructuring how they paid dividends, many insurance companies decided to create a new product. And the Universal Life Insurance (UL) was born.

While the UL is a permanent policy, it has often been described as having a term framework. Essentially, it is a savings account attached to a term policy. A term policy remains active, as long as the premiums are paid, until the agreed upon term length is over (120 years is standard). Unlike term, the UL doesn’t have a set length of time. It remains in place as long as the savings account maintains cash value and the policy’s expenses are paid. The policy starts out very cheap and increases incrementally as you age. For those who consistently maintain cash value in their account, the interest earned is generally high enough to cover the premium charges due upon each renewal.

Earned interest rates are set by the issuing insurance company. They are typically competitive with market interest rates and many companies offer an interest increase once the policy has reached ten years. Interest is credited to the cash portion of the account; dividends are not offered on a UL. If performance or mortality experience is higher than expected, many insurance carriers will pass this on to their policyholders in one of two ways: a reduction in term costs or as an increase in interest credited.

What is an Indexed Universal Life Policy?

Indexed Universal Life insurance is a UL policy that offers it’s policyholders two options – an earned fixed interest rate paid on cash values or a rate that fluctuates based off the movement of the index the client has chosen. While the S&P 500 is the most popular option, the followed index varies from company to company.

Due to the indexing feature, many consumers are led to believe they are exposing themselves to the risks of the stock market. This is untrue and should not be presented as such.

The index is simply the insurance company’s method of determining the interest rate the Indexed UL policy will earn. The indexing feature has a “participation rate” that defines how much of the index’s rise will go towards the policy’s interest rate. This varies from product to product, but many have a 100% participation rate, meaning whatever movement the index makes, the policy will as well (up to the cap).

As mentioned, the indexing feature will generally have a cap on it. Let’s say, for example, if the cap is set for the 13% in the S&P 500. If the S&P rises above 13%, the maximum the Indexed UL will earn is 13%.

The Pros and Cons of an Indexed Universal Life Policy

One of the biggest advantages of an Indexed UL is flexibility. The policyholder has complete flexibility and control regarding their premium amount and timing. If one falls on hard times, the planned premiums can be reduced down to zero, with these reductions made in the coming years.

For those looking for positive growth, without exposing themselves to the volatility of the stock market, an Indexed UL is a great choice. Additionally, you have the option of withdrawing cash from your policy at any time, without facing the stiff penalties and restrictions that come with early withdrawal from your retirement account.

As with anything, however, the UL does have a few cons that should be considered. Many of these policies are loaded with set-up fees that can take several years to pay off. If you’re hoping for positive growth in your cash fund right away, be sure to discuss your goals with your insurance agent, as this might not be the policy for you.

Some consumers are looking for a product that offers strong positive growth. The insurance company has their own process to determine how much cash you’ll gain from the S&P increase. They also impose an earnings cap. Make sure you understand all of the policy’s restrictions before making your final decision.

Due to its flexibility and cash value growth, the Indexed Universal Life product is one of the fastest growing life insurance products on the market. As we’ve mentioned in the past, however, there is no one-size-fits-all policy for consumers. If you’re ready to learn which policies fit your family’s needs and would like to learn more about this product, don’t hesitate to contact us. And stay tuned in the coming weeks, as we further explore the intricacies of Universal Life policies.