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Does your client have a 100-year business plan: using whole life insurance on key employees, buy-sell agreements and business succession plans, you can help your business owner clients find peace of mind for the future of their companies.


Celebrating my 27th year as a New York Life agent, I tell my clients that I love my job. We have all heard and know what TGIF means, but I want my clients and my community to know TGIM (Thank God it's Monday). I cannot wait to get to work on Monday.

What does my passion for my career have to do with a business succession plan? Everything! A career is a sign of commitment, and for my clients to have a 100-year plan for their businesses, they need will an agent who provides stability, confidence, wisdom and professionalism. I have the resources and products available to me to help my clients turn their goals and objectives into tangible business plans.

For a durable succession plan to work for business owners, there should be a straightforward, quality plan in place that helps provide them with peace of mind. Communication and a knowledgeable team of advisors are key elements. I encourage my clients to have a personal board of directors (e.g., a CPA, attorney, life insurance agent, owners, key employees), in addition to any applicable board of directors, to act as a sounding board and to help their successors run their businesses. I recommend the personal board should meet once or twice a year.

The importance of permanent life insurance in a business plan

A company's business plan should include permanent life insurance. In the event of the loss of key personnel, business owners need to have business continuation strategies and contingencies plans. I recommend whole life insurance to help meet this need.

In addition, the life insurance's cash value grows tax-deferred; it can be an asset on the corporate books; it may be used as collateral; and it can be accessed for business needs and emergencies through withdrawal of dividends or through a policy loan. Keep in mind that loans accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest. Banks and bonding companies like to see that companies have permanent life insurance as it can be viewed as a sign of a company's financial stability.

Key employee life insurance

During an annual MDRT Top of the Table meeting, I attended a focus session on key employee life insurance. I learned the concept of "Golden Handcuffs" which can lock in a key employee for multiple years and sometimes for a career. In the Golden Handcuffs concept, the employer is the owner, beneficiary, and the premium payer of a whole life insurance policy on a key employee's life, in which they have an insurable interest. A key employee is defined as someone who provides leadership and contributes significantly to the profitability of a business and hence would be difficult to replace. The premiums by the company are not tax-deductible. If the key employee dies, the employer generally receives the life insurance policy death benefit tax-free. I would recommend a Golden Handcuffs program that provides a one-year salary to the key employee's family at the employee's death. In the event there is no premature death and if the key employee stays with the business for the length of the Golden Handcuffs contract, then the life insurance cash value may be accessed to provide a retention bonus.

The potential benefits for the business owner are employee loyalty, retention of key employees, cash value of the life insurance is an asset on the books, and the death benefit proceeds can be used by the business to help replace any lost profits and recruit and train a replacement in the event of the death of a key employee. Also, the premium costs of the benefits can be recouped.

Buy-sell agreements

Whole life insurance is also the cornerstone of funding buy-sell agreements, which is a contract between the business owners or the business and a way to plan for contingencies. Upon death, the death proceeds can be used by the business owners or the business to provide cash for stock purchases or to purchase the deceased's business interest. In addition, the life insurance's cash value is available for living buyouts.

However, some business owners have key people that are designated as the successors of their business(es), and these key employees want to purchase permanent life insurance on the business owner but do not have the necessary funds for the premiums. Split-dollar arrangements are a useful tool where the company pays the entire premium and the insured business owner would report the current value of the life insurance protection as taxable compensation. At death, the company receives a death benefit amount equal to the greater of the cash value or the total premiums paid and the key employees receive the rest of the death benefit. Please note that the tax treatment of split dollar arrangements depends on the type of the arrangement and when the arrangement is entered into.

I'd also recommend that business owners consider a disability rider on any life insurance policy as it can lead to the opportunity to provide disability insurance.

Business succession planning

For family business succession planning needs, my clients often fund irrevocable trusts with permanent life insurance to provide liquidity for estate taxes. This prevents the forced sale of business assets.

To get your client to see the big picture and visualize a 100-year business plan, you have to be a person of great integrity and trustworthiness. Work with your business owner clients to help ensure they have an effective succession plan in place, which will help provide for a smooth transition in their absence. Whole life insurance can play a vital role in their business plans by helping to protect the business, its key employees and their families.

Richard R. Paulsen, an agent with New York Life Insurance Company, is a member of New York Life's 2009 Chairman's Council and ranks in the top 100 agents among New York Life's elite sales force of more than 11,000 licensed agents. He is also a national motivational speaker on sales and career development. You can contact him at 209-9562800 or

Neither New York Life nor its agents provide tax, legal or accounting advice. Clients should consult with their own professional advisors regarding their specific circumstances.
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Author:Paulsen, Rick
Publication:Life Insurance Selling
Date:Jan 1, 2010
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