All clients have unique circumstances and needs. This creates confusion during the insurance planning process. Through the many conversations we have had, we have identified 9 common mistakes that business professionals make with the implementation of insurance strategies.
1. Failure to review buy/sell agreements when insurance planning
A business owner has done all the planning and completed a buy/sell agreement. Yet the agreement does not receive a periodic review to ensure it’s up-to-date and properly funded with insurance.
2. Forgetting to include disability insurance in a buy-sell agreement
Many buy/sell agreements have a provision for buying out disabled owners in the event of a permanent disability but this portion of the agreement is seldom funded, thus leaving out a major component of an insurance plan.
3. Failure to have a current business valuation
It is common for business owners not to have a general idea of the the current value of their business. With free starter valuations available, this could quickly and easily be corrected. While a starter valuation is not all encompassing, it’s a place to start. From there we work with many CPA’s that can help with a comprehensive business valuation that you can later apply to an insurance planning strategy.
4. Not protecting key people in the business
Many businesses have a key person whose death or disability would greatly harm the future of the business. Key person insurance is a necessity for these businesses and yet this crucial protection is often overlooked.
5. Missing out on other disability insurance related products
This can include business overhead expense which pays the basic expenses of the company in the event of a disability of an owner. Business loan protection can pay off the terms of a business loan in the event of the disability of an owner. Banks love this product.
6. Leaving individual disability insurance out of an individual plan altogether
Individuals with professional occupations who do not have any or enough disability insurance leave themselves exposed to lost income. Doctors are notoriously under-insured for disability insurance.
7. Failing to perform an insurance policy review
Clients should review their life insurance policy (or any insurance policy for that matter) to fully understand the terms of the policy, the conversion privileges of the policy and the beneficiaries of the policy. We can not stress enough the value of conversion privileges particularly for clients who have had health changes.
8. Not understanding the impact Long Term Care (LTC) can have on a family’s assets
We often ask clients “What is your strategy for not growing old?”. The long term care market is rapidly changing and at the same time, people are living longer. With the cost of care rising, how will families pay for it? People are seeking to understand the newer products including life with long term care and annuities with long term care. For business owners, the potential tax deductibility of long term care paid from the business is another area that is missed with insurance planning.
9. Estate planning errors
With the changing landscape of estate planning it is important to review the trusts and the insurance in it (or not in it). We find many times while the trust does contain life insurance it isn’t being accounted for correctly which could create a surprising tax liability for the beneficiaries.