Why Should Small Business Owners Consider Critical Illness Insurance?

Why Should Small Business Owners Consider Critical Illness Insurance?

Small business owners like you face many challenges. From employee management, customer service, sales, marketing, accounting there is a myriad of things to do. In most cases small business owners pride themselves on being heavily involved in their businesses to ensure success. This is true even when you don’t feel your best. Similar to top performing athletes, minor illnesses such as the cold, flu, sprains, muscle strains, etc. don’t keep business owners sidelined. I remember as a child watching my father continue to work despite not feeling well because quite frankly there is no such thing as a paid sick day for small business owners. In fact, the bills and payroll just keep coming in regardless of how you feel.

However, what about in situations that could sideline even the most committed small business owner? What about receiving news from the oncologist that you have cancer? What about a major heart attack or stroke?

What will be your plan then to keep your business running without you?

Enter critical illness insurance. This policy pays a tax free lump sum benefit in the event you are diagnosed with cancer, stroke, heart attack, and roughly 20 other listed illnesses (each carrier is different so consult an insurance agent for a list of covered illnesses)

There are three simple reasons to consider a critical illness insurance policy if you are a small business owner:

1. Protect your family

No doubt this could be a challenging time for your family. The stresses involved are real. Will your spouse have to take off work to care for you? Will you have to home modifications due to your illness? Will you have high out of pocket medical costs? Money does not replace your health but sometimes it does help ease the burden and provide some much needed relief to your wallet and saving accounts. This can allow you to focus on recovery!

2. Protect your investment

If you are like most small business owners you have invested thousands of dollars and most likely hundreds of thousands of dollars in your business. You have labored nights, weekends, and holidays and most likely at some point you have sacrificed time with your family to make things happen. In a situation of a critical illness all this becomes at risk. The lump sum benefit paid by the insurance policy could provide you with a much-needed financial buffer to protect your investment.

3. Help keep business operations going

With your absence, the business may need a manager to help smooth things over. Will you promote from within? Will you hire from outside? Either way you will need to compensate someone to manage the day-to-day affairs. Additionally, if you are involved in the sales process your business may experience a loss in revenue that will need to be replaced: a critical illness policy can help you accomplish that.

When Should I Buy Whole Life Insurance?

One of the most common questions I have received has been “When should clients consider a whole life insurance policy versus a term life insurance policy?”.

My first reaction is that I know of no widow or child that received a death benefit and thought “Did Mom or Dad get the whole life or term life?” The first step is to always have some type of life insurance protection in place. However, I understand that consumers want to make sure they are making a solid financial decision so I decided to acknowledge the top simple reasons clients go with whole life insurance.

1. They want the permanent death benefit

They understand their own mortality. They want to leave their loved ones an inheritance or they have long term debt that needs to be paid off. They simply don’t have a crystal ball to know their financial situation at their time of death and they want to ensure a policy is in force for their loved ones when they pass.

2. They want a low risk way to build wealth

Not all whole life insurance programs are equal. Some are designed for long term death benefit performance and some are designed to accumulate cash value efficiently. Depending on your goals you should consult with a life insurance specialist to design a policy custom to your needs. Although the rate of returns are not comparable to the stock market it is a low risk strategy with a respectable rate of return given the low level of risk.

3. They want strong guarantees

A life insurance policy is a contract with a life insurance company. Many companies are highly capitalized and have a track record of performance for many decades. With a whole life insurance contract the company is able to guarantee a lifetime death benefit even if the insured develops health conditions later in life. As long as premiums are paid and no exclusions apply (i.e suicide) then the death benefit is guaranteed to be there for their families. Additionally, the cash value growth is guaranteed every year and some policies can receive a dividend from the issuing insurance company but the dividend is not guaranteed.

4. They like the living benefits of whole life insurance

Some of the living benefits are tax deferred growth on cash value, creditor and lawsuit protection (varies by state), access to liquid cash in case of emergency via policy loan, funding or college or a business, or cash value surrender (withdrawal) as a retirement supplement.

5. They don’t want to burden their loved ones with their final expenses

Clients who buy whole life insurance want to make sure that their burial expenses are not a burden on family members or friends. They prefer whole life to term life insurance because their term could expire before their death.

6. Their families will owe estate taxes

This is for affluent clients but essentially if an estate tax would be owed to the government the family can utilize the death benefit to pay taxes instead of liquidating the estate’s investments, property, or business interests. This is obviously heavy on tax planning and clients should consult an accountant or tax professional before using this strategy as situations can be complex.

7. They want to pass on a business or give their family time to sell the business upon their death

In the case of a business owner’s death, the family might not have interest or skill to continue the business or they want to sell to a qualified buyer. However, selling a business is complex and can take months or years. In the meantime the business will still need capital to operate and the whole life insurance death benefit could be a helpful resource to provide the family time to find and negotiate with a buyer.

8. They want to make a charitable donation

These clients understand they have a purpose in life larger than themselves. Whether it be their local church, an alumni association, or other charity the client wants to make one last contribution so that their charity can make the world a better place.

Consult with your financial advisor or life insurance agent to learn more. If you are interested in a consultation then please give me a call today.

5 Nuggets for a Successful Retirement

5 Nuggets for a Successful Retirement

Like most Americans you probably feel some anxiety regarding your vision of your retirement. Don’t worry many others both young and old feel the same as you. With the decline of the defined benefit pension you are left to figure out a plan mostly on your own with little formal or informal education. Don’t worry I have come up with a simple checklist to help you be on your way to making your plan successful. Please note that these are just considerations and there are many other factors to account for as individual circumstances vary.

1. Design Your Income Pie Chart

When you think about retirement you have to think about where your income will come from to sustain your living expense needs…things like food, shelter, transportation, clothing, and medicine. Where do you plan on getting the income for these necessities? If you’re like most people these will probably come from: social security, annuity income, withdrawals from company 401k plan (or other qualified plan), withdrawals from individual retirement accounts, the sale of your business, or if you are lucky a pension plan from your employer.

Draw a circle and divide it into sections. You can ballpark the percentage breakdown of each income category until you are able to predict a more accurate number as you inch closer to your retirement. But at least you are forming the shell of a game plan to get you where you want to be. The accuracy can be built on and improved over time.

2. Don’t Ditch That Life Insurance Policy Yet

The situation becomes your kids are grown, the mortgage paid off so the natural instinct may be to drop your life insurance program all together. However, this crucial policy may be the key to the long term financial security of a surviving spouse in the event of a spousal death with a prolonged illness, unforeseen expenses in old age, lack of savings, and poor investment performance of retirement accounts. The tax free (federal income) death benefit could serve pragmatically as asset replenishment for a surviving spouse; help your family pay for funeral expenses, pay estate taxes (for wealthier families) or left as an inheritance to adult children, grandchildren, or your favorite charity or church.  It could also serve as supplemental retirement income if needed. In the event you own a term life policy you may consider converting your plan to a permanent insurance policy to receive some of the benefits stated above. If you have a permanent policy that you can no longer afford you may convert your policy to a reduced paid up plan to keep some of the death benefit or utilize a 1035 Exchange to transfer the cash value tax free to an annuity. Consult your life insurance agent for your specific program.

3. Get Smart on Social Security

The fact is that most Americans will rely heavily on Social Security to make ends meet in retirement. Be proactive and learn about your Social Security benefits and entitlements ahead of time so that there are no surprises. Consider the pros and cons of receiving benefits earlier or waiting until full retirement age. You canresearch websites such as http://www.ssa.gov to receive information from the horse’s mouth instead of second hand.

4. Pay Off What You Owe

Debt repayment is also an important part of your plan. Try to minimize or eliminate the amount of debt you carry into retirement. The debates rage as to the order of debts to pay down first or should you even retire secured debts such as a mortgage. Although I have opinions on this issue this article will not get into that debate.

5. Get Your Final Affairs in Order

You should make it a top priority to get your final affairs in order while you still have an opportunity. Funeral expenses are arguably the most expensive purchase made during the golden years. When you plan these items while you are still working you can use your retirement savings elsewhere. Some items that you should take care of are:

  • A. Get a will done (or update your current one)
  • B. Estate plans (What will happen to your assets?)
  • C.  Life insurance (See #2)
  • D. Pre-arranged funeral or cremation plans- Many local funeral homes allow you to plan and even pay for your funeral or cremation in advance. This relieves your loved ones from having to pay and plan for these arrangements during a very difficult and emotional time. Let them know what your final wishes are so they are aware. More info can be found at http://www.funeralbasics.org/
  • E. Cemetery plots/property- Along with funeral plans this is another step that is often overlooked. Additionally if you are a veteran get smart on your benefits for a VA cemetery burial and memorial.
  • F. Memorial (headstone) – I have professional experience designing and selling these and it can be a hot topic between family members. By planning in advance you will be able to prevent disputes and relieve stress for your family.