CHECKLIST OF INSURANCE NEEDS FOR ESTATES AND BUSINESSES

Life insurance needs are like elevator needs. When a building is built, the elevator shafts are blatant cavities and require elevators to fill them. Life insurance professionals who work in estate and business planning have no difficulty in selling life insurance because the elevator shafts are obvious. 

An insurance professional, however, must be careful not to sell more insurance than is (1) logically needed, (2) in an amount that comfortably satisfies that need, and (3) of the type of insurance which the family or business may easily afford to cover that need.   

Life Insurance Needs for a Family Estate Plan

Sufficient life insurance on the major breadwinner to provide whatever capital that is necessary, after taking into consideration the value of existing investment assets, to have a fund of ten times the annual earnings of the breadwinner. This fund will provide a comfortable living for the surviving spouse and children.

Life insurance on major breadwinner to pay existing family debts.

Life insurance on major breadwinner to pay for the college education of minor children if breadwinner dies.

Life insurance on major breadwinner to pay likely income taxes on the phantom income from tax shelter rollovers.

Life insurance on stay-at-home spouse from $200,000 to $500,000 to provide funds for breadwinner spouse to downplay remunerative work, to be with the grieving family members, to readjust himself/herself, to hire household help, and/or buy extra toys to better recover, and generally pay down debt.

Life insurance on last spouse to die or on youngest spouse, owned by Irrevocable Trusts for the benefit of the children or grandchildren to pay likely estate taxes.

Life insurance on each of the children to protect their insurability and to compensate the siblings in the family on the loss of a brother or sister.

Life insurance on the spouse with the smallest estate to equalize the estate of husbands and wives in a second marriage situation when one spouse with children is wealthier than the other spouse with children and to prevent psychological problems.

Life insurance on the children to buy out in-laws of children of a wealthy family so that they will not make claims against family assets.

In small estates (e.g., a truck driver and stay-at-home spouse), life insurance on the breadwinner that is sufficient to pay an amount on death that would be equivalent to what the breadwinner would have paid to stay-at-home spouse and children if divorced.

In small estates, life insurance on the breadwinner or stay-at-home spouse to bring the estate up to $3 million net worth to qualify for the maximum lifetime estate tax applicable exclusions.

Life insurance policies heavily funded and owned by an irrevocable trust on the lives of the clients so as to have tax-free, compounded increases in cash value at better rates than municipal bonds, creating what we call “a personal pension plan.”

Life insurance placed in family charitable foundations to expand the fund in a family foundation when a family member dies, thereby multiplying the charitable benefits.

Wealth replacement life insurance to replace funds that were given to charity to safeguard the funds from income and estate taxes. This wealth replacement insurance is purchased in irrevocable family fortress dynasty trusts in the children’s and grandchildren’s generations to offset the remainder distributions from Charitable Remainder Trusts, ERISA retirement plans, and direct gifts to charities.

Life insurance owned by the Family Foundation or another charity that will provide a large charitable fund to carry on special charitable projects of the family.

Long term care insurance where the income from the estate is likely to be insufficient to provide for the standard of living of the client when disabled.   

Life INsurance Needs for a Business

Buy and sell life insurance on owners of business in sufficient amounts to pay down the purchase price amount to a balance that can be easily secured by the corporate assets and that can be easily repaid by likely corporate cash surplus over a ten year period.

Buy and sell disability insurance on owners of business that will go into effect within one year of disability of an active owner with the same payback and collateral as the buy and sell life insurance.

Life insurance on key persons that is sufficient to pay off critical bank loans and one year’s salary of the key persons or a nominal amount of $50,000 or $100,000 on key persons at the time of starting a new corporation.

Disability insurance on key persons that is sufficient to pay off critical bank loans and one year’s salary of the key persons or a nominal amount of $50,000 or $100,000 on key persons at the time of starting a new corporation.

Life insurance on key persons to fund deferred compensation plans that are discriminatory in favor of certain worthy key persons.

Life insurance in business retirement plans placed irrevocably in a sub-trust within the retirement plan or purchased out of the plan and transferred to the next generation into irrevocable life insurance trusts.

Charitable split dollar life insurance that will allow major portions of the premiums to be tax deductible, splitting the proceeds equitably between the business or shareholders and the charity.

Disability insurance sufficient to pay key employees 60% of their compensation, including funds from Worker’s Compensation and Social Security, after a waiting period of 90 days.

Group life insurance sufficient to give key owners $50,000 of life insurance, the premiums of which may be paid with before-tax corporate dollars.

Major medical insurance on owners of business with at least $1 million of coverage. 

Property and Casualty Insurance Needs for a Family Estate Plan

Umbrella liability insurance covering all family members and all business entities. This coverage should be in amounts from $1 million to $5 million.

Uninsured motorist, under-insured motorist, and liability coverage on all vehicles up to at least $500,000 with integration into the umbrella liability insurance, if possible, in addition to the standard motor vehicle coverage.

Replacement value car insurance and fire insurance on household goods and personal effects to protect real values with a $500 or $1,000 deductible or more.

Replacement value fire and casualty insurance on all homes and buildings owned by the family with large deductibles to reduce the cost.

Property and Casualty Insurance Needs for a Business

General business liability of $500,000.

Replacement value fire and casualty insurance on all buildings, furnishings, and equipment with large deductibles.

Uninsured motorist, under-insured motorist, and liability coverage for all vehicles up to at least $500,000.

Umbrella liability insurance of $1 million to $10 million if the corporation is irreplaceable and could not be abandoned and to get the business started again in another corporate form. 

Other Necessary Actions to Insure Optimum Protection

Execute agent of record contract with property and casualty insurance professional.

Execute agent of record contract with life, medical, and disability insurance professional.

Establish a close relationship between the attorney and life insurance professional and property and casualty insurance professional for the estate and business with:

• a minimum of one networking meeting per year;
• meetings to discuss clients prior to the attorney meeting with the client; and
• continual swapping of new educational materials.