If you advise business owners on high-end life insurance, planning for what will happen with that policy when the owner retires is just as important as establishing the policy
(Related: Estate Planning Is Still Important)
As a good steward of your client’s resources, you can and should try to make sure your client is receiving competent, effective advice about transition planning — especially as it pertains to their high-end life insurance.
Many business owners know, in theory, that they should make these decisions and talk to their financial advisor long before they retire, but a large majority fail to put a plan in place before it’s too late.
Here are four critical questions to consider when you’re helping a client make this big life decision. The concerns range from whether clients need life insurance in retirement to what kind of buy-sell life insurance should be in place.
1. What happens to business owners’ own high end life insurance when they retire?
The fate of a business owner’s high-end life insurance during retirement or a transition to new ownership is usually determined by the type of insurance held at the time of the transition and depends on the flexibility of that insurance. If a business owner plans far enough in advance, they can ensure their life insurance supports both the viability of their business and their own well-being in the next stage of life.
2. What type of policy is it, and who owns it?
Understanding who owns the policy and what kind of policy it is will help you decide if a change needs to be made prior to the transition.
Often, a permanent life insurance policy is more beneficial than term life insurance. Once a permanent insurance policy is paid for, it will be in place until death. The permanent insurance will also lend itself to more options once a successor is put in place, ultimately holding more value for the business owner and the business overall. Alternately, a term insurance policy will only last until the term is complete, necessitating the potential need to revisit the insurance plan and cost. If the term insurance contains a convertibility provision, this should be considered, particularly if the insurability of the owner is in question.