INSURING YOUR EXIT (AND CONTINUITY) PLAN

Transcription

1 INSURING YOUR EXIT (AND CONTINUITY) PLAN Mark Desiderio and Steve Kroeger Mark Desiderio and Ryan Insurance Strategy Consultants Ryan Insurance Strategy Consultants is the Plan Administrator for the FPA LTD and Life plans as well as for other national financial planning associations disability plans. Licensed to do business in all states, Ryan Insurance Strategy Consultants also helps non-insurance licensed financial advisors with the evaluation of life, disability and long-term care policies for themselves and their clients. Mark Desiderio has been a disability and life insurance specialist since He started working on the carrier side, at The Hartford, before transitioning to the RISC team as an independent agent. FPA Institutional Member 1

2 Steve Kroeger and Crump Life Insurance Services As Senior Director of Advanced Sales with Crump Life Insurance Services, Steve Kroeger is responsible for the development of advanced sales within all of Crump s field offices and their various national accounts. While business continuation planning is Steve s primary area of expertise, he also has extensive experience in estate planning and related advanced sales topics. He has spoken and provided continuing education credit to various professional organizations including numerous branches of the FPA and NAIFA as well as both the Florida and Pennsylvania NAIFA state conventions. In addition, he has had a number of articles published in industry trade journals including the Journal of Financial Service Professionals, Life Insurance Selling, InsuranceNewsNet, and the Agent Sales Journal among others. Agenda Three questions every advisor should ask their business owner clients 1. How do your see your involvement in your business changing or evolving in the future? 2. What will happen to your business if something happens to you? 3. What method or methods have you used to assess the value of your business and how confident are you in that process? Questions? 2

3 Why is Exit/Continuity Planning Important? Baby Boomers own businesses May soon be required Opportunity to network with other professionals Succession Planning Resources Crump Michael Kitces Nerd s Eye View Business Enterprise Institute (BEI) Exit Planning for Business Enterprise Institute (BEI) Exit Planning for Advisors 3

4 Three Questions You Need to Ask Your Business Owner Clients 1. How do you see your involvement in your business changing or evolving in the future? 2. What will happen to your business if something happens to you? 3. What method or methods have you used to assess the value of your business and how confident are you in the process? Question #1 How will your business change or evolve? No Change? Staying 5-10 more years and then selling completely? Staying 5 10 more years followed by a slow phase Staying 5-10 more years followed by a slow phase out? 4

5 Question #1 How will your business change or evolve? What is your plan for passing along ownership? Do you have a Buy-Sell agreement? Question #1 How will your business change or evolve? Types of Buy-Sell Agreements: The Basics Entity Purchase Cross Purchase One-Way The Hybrids Trusteed Insurance LLC Cross Endorsement 5

6 Question #1 How will your business change or evolve? The Basics Entity Purchase Cross Purchase One-Way OeWay Question #1 How will your business change or evolve? The Hybrids Trusteed Insurance LLC Cross Endorsement e 6

7 Question #1 How will your business change or evolve? Section 101(J) Notice and Consent Requirements The employer must give the employee (including owners, officers and highly hl compensated employees) written notice. This notice must include the following: The employer intends to apply for life insurance on the employee s life The maximum face value the employee could be insured for at policy issue The employer will be beneficiary of any proceeds payable upon the death of the employee The employee must consent to the employer continuing coverage after the insured terminates employment The Notice & Consent form must be signed before the policy issue date Disability? One-Way Buyout/Buy-in Two-Way Buyout Death? Term Insurance Permanent Insurance 7

8 Disability Make sure the policy definitions and Buy-Sell agreement definitions match Don t want the Buy-Sell to trigger when the funding mechanism will not Disability One-Way Buyout/Buy-in Lloyd s of London High limits Lump sum and monthly payments available Total Disability definition Business Overhead Expense Short term solution to cover expenses Residual and Total Disability definition 8

9 Sample One-Way Buyout/Buy-in Rates $1 Million One Way Buyout/Buy In Disability Insurance Plan Age at Purchase Annual Premium (Male/Female) 60 $7, $9, $18,748 The above plan features a 1 year elimination period, $16,667/month benefit, payable for five years. True Own Occupation protection. Premiums for disability insurance may be a deductible expense for C corporation practices, but then the benefits received would be subject to income tax. Source: Lloyd's of London Disability Two-Way Buyout Guardian Life, MetLife, Principal, etc. Up to $3MM of coverage Lump sum, monthly payments or a combination available Total Disability definition Future Increase Option available 9

10 Sample Two Way Buyout Rates $1 Million Two Way Buyout Disability Insurance Plan Age at Purchase Annual Premium (Male) Annual Premium (Female) 40 $3,900 $5, $7,000 $9, $15,900 $16,000 The above plan features a 1 year elimination period, $16,667/month benefit, payable for five years. True Own Occupation protection. Source: Guardian Life Death Term Life Insurance 10, 15 or 20-year term is often times adequate Inexpensive great choice is large disparity in age between partners Renewable and Convertible if needs and the health of partners change 10

11 Sample Term Life Rates $1 Million Buyout Term Life Insurance Plan Age at Purchase Annual Premium (Male) Annual Premium (Female) 60 $2,400 $1, $4,300 $2, $7,200 $4,000 Rates assume good, health, nonsmoker, 10 year premium rate guarantee and a Colorado resident. Source: AdvisorTermQuotes.com Death Permanent Life Insurance Return on investment Built in retirement funding vehicle 11

12 Question #3 How has the business been valued Several types of business valuation methods. Which are right for your client s business? Who is doing the valuation? The original valuation and reevaluation at time of sale should be done with the same method(s) Insuring you exit (and continuity) plan Questions? 12