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June 14, 2009 at 08:00 PM
In an economic environment when most business owners are focused on short-term financial issues, insurance professionals need to help owners not to forget about the bigger long-term consequences. The economic downturn has created financial gaps for business owners. Life insurance can be an effective tool to fill these gaps, both for the short and long term.
No one business or business owner is the same, but the fast and steep economic decline of late has generated a common set of financial gaps for many enterprises and their owners. For owners of a closely held business, these gaps include:
? The Retirement Gap–The difference in a retirement income goal that can’t be filled by Social Security and a qualified retirement plan.
? The Market Gap–Because of market losses, there is a difference between the current amount of capital and the amount needed to accomplish financial goals.
? The Business Value Gap–With the business being a key element in the retirement plan, there is a need to maximize its value. Capturing the difference between the business’s book value and the fair market value is essential for the retirement plan.
? The Estate Value Gap–The decline in market values has created a difference between what owners have and what they dream of passing on.
? The Government Gap–The government has clearly promised more than it can deliver. Federal, state and local government budgets are strained, leaving a gap between what the government has promised and what will be delivered.
Although these gaps are generally short-term in nature, the tools and solutions that can fill them don’t need to be. The business owner wants to repair and restore lost wealth, but also needs to look to the future. Life insurance can help in both regards.
Life insurance is a hedge to cover the owner’s family and business in the event of unforeseen events, such as death and disability. Insurance can also be a tax-advantaged accumulation tool that helps fulfill and fund the business owner’s long term financial goals.
Insuring the gaps
The next time a business owner laments “I’ve lost more than half my wealth in less than a year,” the financial professional should help the owner put this challenge in perspective. As bad as this loss has been for the owner directly, how would the owner’s business and family feel if the owner were not around to help restore the values lost by the economic collapse? As the arduous task of restoring one’s lost fortune begins, the owner needs to insure the financial gaps against further loss. Life insurance is needed to provide liquidity in the event of the untimely death of the business owner.
