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Life Health > Life Insurance

Whole Life Insurance: An overlooked foundation of business succession planning?

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When its owner for more than four decades passed away suddenly, Troy Belting and Supply Co. in Watervliet, N.Y., could have collapsed, as do many family businesses that lose their leaders. Instead, the company continued to operate and grow, thanks in part to a succession plan funded by life insurance.

“We were able to keep operating the company and retain every one of our workers because my father had the foresight to put a succession plan in place that protected not only his family but also the livelihoods of all of our employees,” said Jason Smith, who succeeded his late father in 2003. “Whole life insurance was a critical part of that plan.”

And whole life insurance has become a part of the newest Troy Belting succession plan, too. “Both Jason and his mother, Karen, have purchased key-person whole life insurance policies and rely on the death benefits to ensure that the company and its employees will have continuity, should anything happen to either of them,” said financial professional Todd McDonald of The Albany Agency, a general agency of Massachusetts Mutual Life Insurance Co. (MassMutual). “They want to take care of their family and their employees in the same way that their father and husband did.”

The company’s story is a lesson in how whole life insurance can help business owners manage some of the most challenging and common risks they face, such as retaining control of a company upon the death of a partner, retaining and rewarding top talent, keeping a company running effectively upon the death of a key employee, and even finding cash at times when credit dries up.

“The versatility, guarantees, and permanence of whole life insurance can help solve some of the inevitable challenges that businesses confront over time,” said Beth Wood, assistant vice president, U.S. Insurance Group, MassMutual. “Many business owners realize that they will be forced to deal with one or more of these types of issues one day, which is why they want to have a plan that’s guaranteed to be there when they need it.”

Whole life insurance can, for example:

  • Protect a business or business owner from financial loss – including the loss of control of a part of the business – as a result of the death of a partner or co-owner. As part of a buy-sell agreement, the policy’s death benefit can be used to purchase the deceased partner’s shares from his or her estate.
  • Protect a business from loss as a result of the death of a key employee. The policy’s death benefit can provide a cushion that enables the company to continue operating while seeking a replacement.
  • Be used as a highly valued employee benefit for key personnel whose loved ones can benefit from permanent, guaranteed coverage in the event of the employee’s death. In addition, the employee may be able to draw upon the policy’s cash value through loans to help supplement income in retirement.

Furthermore, the cash value of a whole life insurance policy can give businesses the flexibility to manage through the ups and down of the business life cycle by providing funds to respond to expected and unexpected challenges and opportunities. Among many potential uses, a whole life insurance policy’s cash value can be used as, for example:

  • A source of cash during times when access to conventional sources of credit are restricted or unavailable.
  • A source of emergency funds to pay for replacement or temporary talent if a key employee leaves, becomes disabled or retires.
  • A “bookable” asset on the company’s balance sheet.

“A whole life policy can help a business address more than one need at once, and that’s the kind of leverage any smart businessperson can appreciate,” said Timothy Flanagan, general agent, Hinrichs Flanagan Financial, a MassMutual general agency in Charlotte, N.C. “Whole life insurance can be part of a very effective strategy for managing what I think are the three biggest and most common risks that business owners face: Lack of capitalization and liquidity; attraction and retention of good employees; and continuity and succession. And it’s not an ‘all or none’ decision – many smaller or younger businesses may opt for quality, convertible term life insurance, so as they grow and additional cash becomes available, they’re able to bridge to broader benefits.”

The urgent need for business owners to manage both personal and business risks was highlighted by MassMutual’s 2009 family business partners study, which found that only 39% of those surveyed had a legally documented succession plan in place.

To view Jason Smith and his mother tell their story and for more information on how whole life insurance can help business owners, visit


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