significant financial loss.
• A closely held business is a sole proprietorship,a partnership, or a corporation that is owned by only a few individuals.
Dependents’ Support
• A policy beneficiary who receives policy policy death benefits is not required to pay income taxes on the policy proceeds.
Education Costs
Final Expenses and Estate Planning
• Analysis
As part of an estate plan, Kyle could consider purchasing insurance on his life and naming his sons as the beneficiaries.In deciding what face amount of insurance to purchase,Kyle should try to determine the amount of cash that his sons might need to pay his debts and estate taxes and to continue operating the farm.
Buy-Sell Agreement (sole proprietorship buy-sell agreement
• Anslysis
Celeste can purchase a term insurance policy on Lisa’s Life and name herself as the policy beneficiary.Celeste should purchase a policy with a face amount that is high enough to allow her to purchase the business from Lisa’s estate if Lisa should die within the 10-year period before her retirement.
Education Costs
• Analysis
Jane can purchase a term life insurance policy with a benefit amount sufficient to cover Mark’s living expenses and college tuition until he has finished his schooling.If Jane has sufficient funds,she might consider purchasing permanent life insurance,which would provide life insurance coverage throughout her lifetime, as well as accumulating a cash valve against which she could borrow to obtain money for Mark’s college education.
Business Needs Met by Life Insurance Products
• Buy-Sell Agreement • Key Person Life Insurance
Buy-Sell Agreement (sole proprietorship buy-sell agreement)
Final Expenses and Estate Planning
• Example
Kyle larson is a 45-year-old widower who owns and operates a large farm.He has two sons who work for him.Kyle has recently obtain a large loan to finance expansion of the business.He wants to ensure that if he should die,his son will inherit the farm and will have enough cash on hand to pay the business loan and his other outstanding debts and estate taxes .
Other Personal needs for Life Insurance
• Donate the proceeds of the policy to a charitable organization,such as a church or a education institution.
Business Needs Met by Life Insurance Products
• Example Jane Echols is a single parent with a fouryear-old son,Mark.She wants to make sure that if she should die before Mark is grown,he will be supported until he can finish his education and support himself.
Buy-Sell Agreement (Partnership buy-sell agreement
• Cross-purchase method • Entity method
.
Example
(Cross-purchase method)
John Sweet, Shelly Turner, and Ned Bailey formed a partnership knows as Home Care. They have entered into a cross-purchase buy-sell agreement under which each partner agrees that if one of the partner dies,then each surviving partner will purchase one-half of the decease’s interest in Home Care.They have determined that the total value of the partnership is $150,000 and have agreed to purchase life insurance policies to fund the buy-sell agreement. What amount of life insurance should they each purchase on the lives of the other two partner?
Personal Needs Mts
• • • • • Final expenses and Estate Planning Dependents’ Support Education Costs Retirement Income Other Personal Needs For Life Insurance
Meeting Needs for Life Insurance
Chapter Outline
• Insurance Needs Met by Life Insurance Products • Business Needs Met by life Insurance products • Life Insurance as an Employee Benefit
• Business continuation Insurance plan is a insurance plan designed to enable a business owner(or owners) to provide for the business’s continued operation if the owner or a key person dies. • A key person is any person or employee whose continued participation in the business is necessary to the success of the business and whose death would cause the business a
Analysis
Let’s evaluate this example by consider one partner’s situation. John has agree that if Shelly or Ned dies, he will purchase one-half of the deceased partner’s interest in the partnership. Each partner’s interest is valued at $50,000. If Shell or Ned dies, John will ownership interest. Thus, John needs to purchase a $25,000 insurance policy on Shelly’s life and a $25,000 insurance policy on Ned’s life.