INSURING YOUR INCOME-EARNING ABILITY
A small business is not just a little big business.
Small-business owners often rank long-term planning just above an IRS audit on their lists of least favorite things. Part of it has to do with today's fluid economy, which keeps many owners busy just managing the day-to-day activities of their companies, let alone thinking about succession planning and other estate transfer issues. However, the heart of the matter is that planning is difficult: there never seems to be adequate resources to meet every objective.
That's why some small-business owners -- the ones who do plan -- recognize the power of life insurance to stretch dollars and help achieve their objectives.
The harsh reality: Those who fail to plan... According to The Center for Financial & Tax Planning, most business owners recognize the importance of long-term strategic planning for the future disposition of their companies and to provide for their families. Still, while 51% say they have a strategic business plan, only 12% have actually put it in writing. In other words, about 94 out of every 100 business owners have done little more than talk about their long-term planning. Should they die or become disabled, these blue-sky dreams would carry zero weight in the legal and financial decisions that would ensue.
There are many reasons owners tend to put off planning for the future. One is that they're too busy. They rarely have the luxury to sit back and engage in long-term planning about their future, their family's future, and the future of the business.
Plus, the process can be emotionally challenging, and many people would just as soon let sleeping dogs lie. Even such a seemingly simple procedure as drafting a will -- let alone planning a business succession -- can open up issues that many people would rather not think about. "Creating a will, for example, can be very stressful," observes Robert Kastenbaum, Professor Emeritus with Arizona State University, and one of the first psychologists to study the phenomenon of death and dying. "It can bring up questions of unresolved family conflicts, loyalty, deciding who gets what... who do I love most?"
Just as frustrating, the process is complicated, especially for business owners. Their financial profile has two faces -- that of a business owner responsible for keeping the company running smoothly and deciding what to do with it when the time comes to pass the baton; and that of a family member responsible for protecting the financial security of a spouse and children.
Finally, there is a matter of available assets to carry out objectives. For many business owners, most of their wealth is tied up in the company. Very often highly leveraged, they lack ready cash. As a result, they are hard put to find good answers to many key planning questions.
Where will the money come from...
Life insurance is a unique financial tool that can help meet two objectives:
1. It can provide an immediate, tax-free death benefit at your death. Purchased for pennies on the dollar (with premium rates based on your age and health), you may be able to purchase hundreds of thousands, perhaps millions, of dollars of coverage. You designate the beneficiaries. Depending on your needs, cash can be earmarked to help business associates purchase the business (and assure that your spouse receives the buy-out money); it can be directed to heirs as your see fit; or it can be paid directly to your spouse or a trust.
2. It can accumulate cash value. Depending on how ownership of the policy is arranged, this money can be used during your lifetime as a source of business funding or for personal use, such as to pay college costs, meet emergencies...whatever you choose. At retirement, many policy owners tap their life insurance cash values to supplement their other retirement income.
The bottom line: Life insurance makes planning easier by helping provide the money -- at the very time it is most needed -- to carry out your objectives.
For more information about how life insurance can help you achieve your goals, contact our office today for an appointment. There is no cost for this service and no obligation.
1-"Succession Planning," The Center for Financial & Tax Planning, http://taxplanning.com/taxtip1.html)
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I get tremendous gratification from encouraging people to focus clearly on their future final success and security.
Larry Brasel, President