Business Partnership

If you co-own a business with at least one other person, then you are involved in a business partnership. In a business partnership, all co-owners must keep the business safely prepared for the loss of an owner at any time. This is why it is crucial for business partnerships to invest in buy-sell agreements. If you have just one business partner, your partnership dissolves upon his [or your] death. In the case of the death of your partner, his investments in the company will be sold to you at a predetermined agreed-upon price. For partnerships in particular, there are two different types of buy-sell agreement plans—the cross-purchase plan and the entity plan.

Buy-Sell Agreements: Cross-Purchase Plan

When considering a cross-purchase plan, keep in mind that the business puts no money into this agreement. Each member in the partnership, then, agrees to take out a life insurance policy on his other partners. If you have just one business partner, you are the owner of that life insurance policy—you make the regular premium payments and you are listed as the beneficiary of that insurance plan. Your partner, in turn, takes out a life insurance plan on you under the same conditions. How much, then, should you and your partner each take out a policy for? The worth of the life insurance policy you own on your partner should be equivalent to the amount of your partner’s share of the business.

Buy-Sell Agreements: Entity Plan

With an entity payment plan, the partnership puts all the money out for the life insurance policies. The partnership owns the life insurance plans taken out, makes whatever premium payments are necessary on a regular basis, and is the beneficiary of the insurance policies. The buy-sell agreement price comes into play when a member of the partnership passes away. The interest belonging to that member is then purchased by the partnership from his estate. The final step in the entity plan is that when a partner dies and his interest is purchased, that interest is then divided amongst the remaining partners according to levels of their own interest.

If you are involved in a partnership, partially owning a business with at least one other person, there is no “considering” life insurance. It is a must-have for the survival of your business. Look into different life insurance companies with your partner(s) to reach an agreement on what company to invest in when it comes to creating a buy-sell agreement, and be sure to consider all available options.

Key to Survival: Have a Business Plan

If you want your business to survive even after you pass, you should create a plan to make it last. While your business is running smoothly, it would be wise of you to look into different life insurance companies. Though buy-sell agreements differ slightly depending upon the ownership of a business, they all have the same general concept. This concept is the idea of two people within the company creating an agreement and taking out a life insurance policy. There are a few different types of buy-sell situations, one of which is described here.

Single Business Owner

If you are the only business owner for your company, you are known as the sole proprietor. If this is the case, you have no partners and will need someone to take over your business upon your death. When planning the future for your business as a sole proprietor, it is important to consider who will be in charge if anything should happen to you. You would most likely choose a very close, trustworthy, and financially responsible employee to run your business after you are gone.

When making these arrangements, you and said employee must discuss the cost of the business and how the employee will pay to purchase the business upon your death. It is then the duty of the employee to take out a life insurance plan on you, the business owner. In taking out an insurance plan on you the employee has labeled himself the owner of the life insurance policy, the person in charge of paying the premiums, and the beneficiary of the policy. This way, upon your death, your trusted employee will then be able to purchase the business from your estate.

As a sole proprietor, having you and a trusted employee invest in a buy-sell arrangement is one of the best options available to keep your business alive and well after your passing. However, if you are in a business partnership, there are other steps you can take that include a buy-sell agreement to secure the existence of your business, steps to be discussed in the next post.

Financial Planners.

It is important to keep in mind just how much money your loved ones will need in order to continue living comfortably in the unfortunate event of your passing. Advice has been given on more than one occasion by multiple financial planners, also called financial advisers, stating that it strongly advisable to replace around seven years of your current salary through your life insurance policy. However, if you have children who are significantly young in age, when applying for life insurance it is suggested that you cover ten years of your earnings in case of your passing earlier in life when you would no longer be able to care for your younger children. Keep in mind, though, that this is in the event that your spouse or other caregiver (if available) will be unable to financially support your children.

Bills, Bills, Bills!

If your children remain comfortably supported after your death, there will no doubt be unsettled bills left for your beneficiaries to tend to. If you are aware that your children will be well taken care of, when applying for a life insurance policy be sure to take your personal financial situation into account. You do not want to leave your beneficiaries with excess bills that they cannot afford to pay themselves. They should not have to pay those bills with their own earnings. That is why you should have a life insurance policy large enough to legally cover your outstanding debts in case of a life-ending emergency.

The Cost of a Funeral.

In addition to outstanding bills, your beneficiaries will face the unpleasant task of planning your funeral. As everything else in the economy increases, so do funeral costs. It is important to keep in mind that when you die, today’s society almost requires a proper burial. The best way to leave your beneficiaries with as little stress as you can is to make sure that your life insurance policy provides a nice sum of money to contribute to these expenses, if not cover them completely.

So before you make an educated guess on how much you will need based on just one of the categories above, make sure you think again and consider all three categories. Consulting a financial adviser is a smart move, also. Both of these suggestions will help you get closer to the final decision on what life insurance policy is most suitable for the needs of your beneficiaries and yourself.

What is Mortgage Life Insurance?

Mortgage life insurance, also known as mortgage protection insurance, is a type of life insurance offered by your lender when you apply for a mortgage on your new home. Just as the name implies, its general purpose is to pay off your mortgage in the event of your untimely death. Only your mortgage. This type of life insurance is optional when applying for a mortgage.

It is important to know that this type of mortgage insurance is not the same as Private Mortgage Insurance. Private Mortgage Insurance, or PMI, is a mandatory insurance for anyone who cannot make the initial down-payment of approximately 20% of the home’s value when buying or building a new home.

The Cons Outweigh the Pros

When it comes to weighing the benefits and the disadvantages of taking advantage of a mortgage life insurance policy, it is likely that most people will find more disadvantages than benefits for them.

Mortgage Life Insurance: Pros

One of the few advantages of mortgage life insurance is that in most cases you as the applicant go through little to no health screenings. This means that those who would typically have a more difficult time finding insurance companies to approve them due to health issues will have less to worry about when applying for mortgage life insurance through their banks. If you do have issues finding an insurance company willing to accept you and your health issues, it may be a good idea for you to steal the opportunity to get mortgage life insurance when it is offered upon the signing of your mortgage.

Mortgage Life Insurance: Cons

Mortgage life insurance plans are generally a way for banks to push you to make a spur-of-the-moment decision which leads to you giving them even more money in the end. One of the many disadvantages to this type of life insurance is that you pay the same amount in premiums on a regular basis but your benefits decrease over time. The more you pay on your mortgage, the less beneficial the mortgage insurance will be. Since the insurance plan only covers the mortgage, if you pass away with only a few months left of mortgage payments due, the money left over after paying it off disappears.

As cynical as it may sound, banks count on you passing sooner than expected because they know that if the insured person dies, the likelihood of the beneficiary defaulting on the mortgage will drastically increase. This prevents the bank from losing money on your “investment,” so they make sure that if you decline the opportunity to accept mortgage life insurance you suffer through significantly more paperwork to try to convince you that you really do need it.

There is also the possibility that if the bank sells your mortgage life insurance plan to another company, you will need to rewrite the plan. There is more of a chance of a bank selling your policy than another insurance company selling your policy.

Term Life Insurance

If you have a term life insurance policy, on the other hand, you can choose to have it set to pay off more than just your mortgage. This way whenever you pass away, your loved ones do not have to deal with multiple life insurance policies. If you have one that covers everything, there will be less confusion when the time comes for your beneficiary to take control of the policy. Most of the time you will qualify for lower premium rates when applying for term life insurance than mortgage life insurance, too. You can also expect larger payouts with a term life policy.

When it comes time for you to purchase or build a home and you need to invest in a loan from the bank, make sure you think twice about accepting their offer of mortgage life insurance. Do your research on home-buying to discover options that will benefit you best before you even consider taking out a loan.

Step 4: Accident Report

As contradictory as it seems, it is important for you to include accidents on your application for a life insurance policy. If you have ever been seriously injured due to an accident that left you with lifelong negative effects, that accident (any others that have done the same) must be reported to your prospective life insurer. Having an insurance company find out about any life-altering accidents you have experienced from anyone other than you can endanger your coverage. It could even be considered lying to an insurance company, which will jeopardize more than your probability of coverage.

Step 5: Life Insurance Companies

When selecting which life insurance policies to apply for, be sure to take into consideration the companies themselves. The more established companies may deny you only because they can afford to do so, or they will charge you significantly more in premiums. If you do your research and find a few smaller companies that are somewhat new, you may be surprised by your findings. Each of these companies will present you with varying ratings according to the severity of the risk your condition poses on you. This way, you will be able to compare rates and benefits offered by each company that is willing to accept you.

Step 6: Medical Exam

Make sure you are prepared for a medical examination. Many insurers will not accept you without a full medical exam to determine your current health status. To prepare for your exam, there are a few things you should keep in mind. The most beneficial time to receive a health exam is in the morning. This way, you are more alert than if you had been awake for half the day. Also, remember to try to avoid consuming alcohol, nicotine, caffeine, and any other influential substances about a day prior to your exam. For further instructions on what to avoid and other procedures to follow, consult your physician.

However, there are companies with policies you can apply for that do not require medical exams. To find out more about life insurance coverage without medical exams, click here.

It is also important that you do further research by speaking directly with representatives of your potential life insurance companies before making your final decision.

Step 1: Find a Reliable and Experienced Agent

Although many times it is easy to do research on your own via internet and pamphlets and the like, in the case of having a preexisting medical condition it is best to consult someone educated in the field of life insurance and who has had a few years of experience in helping people in similar situations as your own. This will make finding a life insurance policy to suit your particular needs significantly easier. The agent assisting you should approach life insurance companies with care, presenting you and your needs professionally and in such a way that the companies are less hesitant toward providing you with coverage.

Step 2: Medical Documents

When planning to apply for life insurance, be sure to collect all the paperwork involved in your diagnosis of whatever medical condition you are facing. It is important to include everything from all the conditions you have been diagnosed with (if more than one) to the treatments you are undergoing or medications you are taking. If you are taking medication, be sure to list each one and the dosage you take on a daily basis of each. Also, include a list of licensed medical professionals who have treated you over the course of the past ten years. Upon collecting all the above information, it would be wise to make copies of all your documents for safekeeping and create a folder so you have easy access to everything at once.

Step 3: Health Summary

In relation to gathering all your medical documents, you should also compile a summary to present your health status through the years, right up to present day. To increase your likelihood for approval, make sure you emphasize the more positive health practices. It would be wise to mention that you follow a regular exercise routine, you have never touched a cigarette, and/or that you do not consume alcohol. If you were previously diagnosed with any medical conditions that you have since recovered from, do not include them. Insurance companies have no interest in your past issues because if you have recovered, those issues are no longer a threat to your health.

Coming soon: Three more tips on how to improve your chances of approval for a life insurance policy if you have a medical condition that would typically delay or even prohibit your probability of acceptance for a policy.

Life insurance comes in two forms, term and whole life. A term life policy pays a specific amount during a specific number of years. A whole life policy lasts until the day you die, no matter how young you are when you first purchase the policy. Whole life policies include an investment element, which can make your premiums fluctuate depending on the interest rates and the returns your policy receives on investments. You can borrow against your whole life policy at any time, but the interest rates and fees can be daunting. A term life policy does not include any sort of investment option. When you buy a term life policy, you are paying only for life insurance with nothing else.

Term Coverage Is Simple and Straightforward

With a term life policy, you get exactly what you pay for. You choose the number of years that you would like to be covered, and then you choose the amount of coverage you need to purchase. If you die at any time during the coverage period, your dependents will receive the benefit amount you chose when you bought the policy. Your premiums remain static throughout the coverage period, and there is no fluctuation in coverage or cost.

A Term Policy is Less Expensive

The lack of an investment option in a term life insurance policy keeps the cost down significantly when compared to a whole life insurance policy. Term life insurance rates have also plummeted during the past decade because a large number of insured individuals are beginning to outlive their term life policies. This means that insurance companies pay fewer claims and therefore can afford to drop rates. Online competition gives insurance companies the incentive to cut rates as much as possible to attract more business. With a whole life policy, the insurance company knows it will eventually have to pay your claim so long as you keep paying the premium. This means they have to charge you more to cover that eventual payment.

Flexible Nature of Term Life Insurance

Term life policies give you more control over your finances, so you can use them more flexibly. You can purchase term life insurance to cover specific periods in your life when you need the coverage. Once your needs shift, you do not have to continue paying for life insurance. You can simply let policy expire at the scheduled time and sue the money you once spent on payments towards your retirement.

Premiums Always Stay the Same

Term life insurance policies are stable and predictable. Unlike a whole life premium that can shift with the changing interest rates, a term life premium is established on the date you buy the policy and will not change. You can plan your finances for several years in advance when you know that your rates will stay the same throughout the duration of your coverage term. You can also plan for the day when the coverage ends, thus freeing the money you had been spending on your policy.

Term life is perfect for families with children who will grow up and become independent, or anyone who is paying off a mortgage. It also works for those who support an elderly parent financially. Since this encompasses most Americans, you can see why term life is usually the best choice.

Jessica Bosari writes about personal finance and term life insurance at TermLifeInsuranceNews.com, a site that educates consumers and helps them find cheap life insurance. Jessica believes you should never pay more than you have to for term life insurance.

Ownership of a Life Insurance Policy

There are some important things you should know about ownership of a life insurance policy when deciding whether an irrevocable life insurance trust is a logical option for you and your beneficiaries. First, you need to be certain of the type of life insurance policy you are searching for. Will whole life or term life work better for you? Also, know who your beneficiaries will be when you sign up for your policy. Will you have more than one beneficiary? Will it be a spouse, perhaps your children?

It is crucial to know that once you agree to an irrevocable life insurance trust you will not be able to make any sort of changes to your life insurance policy. You will also be unable to cancel your policy once you transfer it to an ILIT. Upon investing in the trust, you transfer all ownership of the policy so that you no longer have any part. It still protects you upon your death, but you can do nothing with it.

The Three Year Period

If you decide to choose to transfer your life insurance policy to an irrevocable life insurance trust, be sure to do so at a fairly young age. There is one particular catch to the transferring of your life insurance policy to an irrevocable life insurance trust. This is that if you (as the person insured) pass away within the first three years of the transfer, your proceeds from the insurance policy will be included in the calculation of your estate tax. Of course, your beneficiaries still receive the money from the policy. However, if you die and are survived by a spouse, it is possible for the proceeds to be distributed to your spouse in such a way that allows for qualification of an estate tax marital deduction.

On the other hand, if you die after the three-year period, the irrevocable life insurance trust will be distributed to your beneficiaries. To avoid the three-year period, you can purchase the irrevocable life insurance trust with your policy. This eliminates the transfer period, as there will be no transfer necessary.

Investing in an irrevocable life insurance trust is an intelligent move if you are worried about the amount your beneficiaries will face in estate taxes upon your death. Make sure you research all options and consult an agent before making your final decision.

Estate Tax

When your property is transferred upon your death, your estate may be subject to estate tax. Depending on the size of your estate, your beneficiaries may have to pay this tax when the transfer of your estate takes place.

If your life insurance proceeds are set up so that they are paid to your estate when you die, then they will most certainly be subject to tax. However, if your life insurance proceeds are paid out to your specific beneficiaries rather than applied to your estate, they may not be included in the calculation of the estate tax because they do not qualify as property assigned to the beneficiaries.

Is My Life Insurance Included in My Estate Tax?

In some cases, the proceeds of your life insurance policy will undoubtedly be included in your estate tax. Your whole estate will open for taxation if the proceeds of your life insurance policy are either directly or indirectly contributed to your estate when you pass. In another situation, your estate will also require payment of taxes if you have any rights of ownership of your life insurance policy. These rights include but are not limited to your ability to cancel or change the policy at any time or if you have the option to borrow money from your insurance policy.

Also note that in leaving your life insurance proceeds to anyone other than your spouse, the proceeds will be subject to taxation and considered part of the calculations of your estate tax. If left to your spouse, the proceeds may be included in his or her estate tax. Be sure you know, if you own the life insurance policy from which you will receive coverage, who your beneficiaries are and whether they will need to handle the taxes related to your insurance policy upon your passing.

71: Liberty Mutual Insurance Group

Coming in at number 71 on the 2010 list, Liberty Mutual Insurance Group offers a multitude of insurance types. In addition to their auto insurance, homeowners insurance, and renters insurance (to name a few), they offer both permanent and term life insurance policies. Their odds of success from rank 86 in 2009 have certainly improved.

68: Allstate

The policyholders of Allstate have most definitely been kept in good hands. Their ranking has improved from 81 in 2009 to 68 on the 2010 Fortune 500 list. Like Liberty Mutual, Allstate offers both term and permanent life insurance policies in addition to their auto insurance programs. To apply for a quote, all you need to do is visit their website for details.

65: Prudential Financial

This insurance company offers a wide variety of life insurance policies and the opportunity to get a quote based on a few yes-or-no questions listed on their web page. Ranking in at 65, Prudential is much higher than the company’s rank of 84 in 2009.

64: New York Life Insurance

New York Life Insurance has gone from 76 to rank 64 on the 2010 Fortune 500 list. As the name implies, this company specializes in various forms of life insurance including term life, whole life, and universal life insurance. By going to the company’s website, you are able to apply to speak with an agent who will discuss with you your most beneficial options for planning your loved ones’ securities.

34: State Farm Insurance

Dropping three spots to sit at 34 on the 2010 list, State Farm has suffered a bit. The company is owned by the policyholders themselves rather than having stock shares available for others who do not have policies with State Farm. In addition to their famous auto insurance and homeowners insurance policies, State Farm offers many other types of insurance including life insurance. To gain a better understanding of the services available, see their website. You can apply for a quote and even search for local agents.

19: Wells Fargo

This mortgage company has skyrocketed from rank 41 in 2009 to rank 19 in 2010. Why is this? Ever since they purchased Wachovia in 2008 for $19 billion, they have gained many more customers, raising their profits greatly. Wells Fargo offers not only auto, business, health, long-term care, and pet insurance. They offer term life insurance and accidental death and dismemberment insurance as well.

5: Bank of America Corporation

Bet you didn’t think this national bank had other benefits to offer. Jumping from rank 11 to rank 5 on the 2010 Fortune 500 list, Bank of America offers term life insurance through Banc of America Insurance Services, Inc. (BAISI). These services, however, are not covered by any guarantee through the bank and are not insured by the FDIC. Other services offered include health, auto, renters insurance and more. For details, visit the Bank of America website.

These are only seven of the 500 businesses listed on Fortune magazine’s Fortune 500 list of 2010. Your best option for understanding all the services offered by each company is to visit their websites for more details and to get quotes or find local agents and locations.