How to Choose Life Insurance
Tassey tells the story of a 79-year-old company president who had a $2 million life insurance policy designed to take care of his family when he passed away. "But he lived," Tassey says. "It ultimately helped the company buy him out."
Dig Deeper: Inventing a New Kind of Life Insurance
How to Choose Life Insurance: How to Buy Life Insurance
Now that you have achieved clarity of your goals in purchasing life insurance and the different types available, it is time to start shopping. Insurance is a complicated product that provides a variety of uses for owners and beneficiaries and so the first step in purchasing life insurance is deciding whether you will purchase the insurance yourself or use the advice and help of a life insurance professional. If you decide to purchase the insurance yourself, you can do so through a variety of Internet providers. Patrick advises that if you buy your own policy, you should also consult with either your attorney or accountant regarding the ownership structures and what type of insurance to purchase.
There are reasons to go through an insurance professional. They can help you determine the best type of insurance for your business, who should own the policies, how much insurance to purchase, and how to structure the policy so that you achieve your objective. "I suggest that you use an insurance professional when purchasing life insurance," Patrick says. "The product is complicated and those who don't work with life insurance on a regular basis will often make mistakes that a seasoned and honest insurance professional won't." In addition, professionals can often alert you to clauses that might be helpful -- such as a rider on a permanent key person insurance policy that allows for the transfer of that policy to a new hire if the key employee leaves, Tassey says.
Dig Deeper: How to Buy the Right Business Insurance
How to Choose a Life Insurance Professional
If you decide to use a life insurance professional, choosing the correct one is the most important step in helping you achieve your life insurance goals. Patrick suggests that you should consider a life insurance agent with the following criteria:
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• Extensive experience in the life insurance business (at least five years)
• A positive reputation in the community
• A designation such that shows competence with life insurance such as CLU (Charted Life Insurance Underwriter), ChFC (Chartered Financial Consultant), or CFP® (Certified Financial Planner)
• Extensive experience working with private business owners in solving risk management, asset protection, and wealth transfer engagements
• An ability to understand your goals and provide solutions that don't always include life insurance (for example, using a "529 college plan" to finance a college education instead of using a cash value life insurance product)
Who Should Be Insured -- And for How Much?
One of the first questions you will want to determine is who should be insured. You can insure one person or dozens and there are sometimes group policies offered that will pay out when the first of, say, three owners passes away. Executives of each business must decide on their own who to cover based on individual circumstances, but often the list of "key persons" considered includes owners, partners, major shareholders, executives, and certain employees.
"If you sit down with business owners or decision makers and ask them who would have had to die last night to have an impact on your business, they know the driver," Tassey says. "You might have two or three in a company or dozens."
The next question is how much insurance you need. "If you are purchasing insurance for business continuation, you want enough death benefit to insure the company continues to operate," Patrick says. "If you are purchasing insurance for family protection, you want enough insurance to provide cash for your family." Determining the amount and type of insurance is often a primary activity of a life insurance professional, your accountant, or your attorney.
Dig Deeper: Smart Questions for Your Insurance Agent
How to Choose Life Insurance: Additional Resources
Financial Planning Association
The trade association that represents financial planners
Life and Health Insurance Foundation for Education
Includes a small business planning section
National Association of Insurance Commissioners
This is the association for state insurance commissioners. There is a link on the front page to bring you to your own individual state for more information.
National Association of Insurance and Financial Advisors
The largest of the trade associations that represent life insurance agents
