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Top 5 Circumstances Life Insurance Can Be Required

There are certainly circumstances that arise where an individual must have life insurance in order to proceed in legal agreements as a way to cover expenses in the event of death. Such situations might be a business partnership, a divorce, obtaining a business loan through the Small Business Administration. In this listing we did include final expense life insurance. Although it’s not required, it’s often overlooked and the expenses add up quickly during life’s worst possible time.

1. Life insurance to qualify for a small business loan.

The Small Business Administration (SBA) requires life insurance to collateralize its loans and will not fund a loan until coverage is in force. With a 1 year renewable term life insurance policy we can generally get large limits of life insurance in force in 24 to 48 hours. No medical exam is required. The only underwriting requirements to issue this coverage are a 1 page application, a copy of the bank loan document, and the premium. We are able to solve complex cases that have their SBA loans in jeopardy because they could not get life insurance.

2. Life insurance – court ordered in a divorce decree or settlement.

In many divorces that include provisions for alimony or child support, it is a common practice to include a stipulation that the supporting spouse should carry a life insurance policy. This can guarantee that the children will still be provided for should the supporting parent die.

How long the policy is maintained depends on what the policy was intended for. If it was meant as security for child support, it can be terminated when the dependent children reach the age of majority. Life insurance policies can also be maintained for longer periods of time if the parent so chooses. If life insurance is required to guarantee alimony, it may continue for as long as the alimony payments are required.

When negotiating your divorce settlement, it is important to designate who will be the owner of the life insurance policy. This is a key factor because the owner controls the policy and has the right to name the beneficiaries. One way to insure the policy is maintained as stipulated in the divorce settlement is to name the custodial parent as the owner of the policy.
You can also include a provision in your divorce agreement stating if the beneficiary designation is changed or if the policy is allowed to lapse, you or your children would be entitled to a portion of your ex-husband's estate equal in value to the death benefit.

3. Life insurance to cover the loss of a key employee in a business.

A key employee is someone whose knowledge and skills contribute significantly to your business income. Losing a key employee would most likely cause substantial negative financial consequences for your business. According to a survey of small businesses by the National Association of Insurance Commissioners, 71 percent of the firms surveyed said they were very dependent on one or two key people for their success. However, only 22 percent of respondents had key person life insurance in place.

There is no set formula for putting a dollar value on the financial impact of a key employee’s death. Nevertheless, you need to come up with a figure as a guide to how much insurance coverage to buy. Some life insurance companies provide formulas for this, which may or may not have a realistic relationship to the employee’s worth to your business.

In some cases, a look at the employee’s responsibilities can facilitate valuation. If, for example, the employee is responsible for a certain volume of sales, the loss is the profit derived from the person’s sales, less the profit that could be expected from a replacement.

Also to be included is the expected cost of replacing the employee, including employment agency fees and moving expenses and possibly a higher salary for the replacement.

4. Life insurance to cover final expenses.

Don’t leave your bills behind for family members to pay.

Like most, you probably do not want to leave these financial burdens to your loved ones. Proceeds from a final expense life insurance policy pass to your beneficiary at the time of your death to help cover funeral or burial expenses, unpaid medical bills or other costs. Speak to us today to find out how one purchase can lead to a lifetime of peace of mind.

Unexpected costs can create a financial burden on family members, making this time even more difficult. Planning your funeral arrangements or how your loved ones will pay for your final expenses is not typically at the top of anyone’s to-do list. But could your family pay for these expenses without sacrificing their retirement and savings? If you’d like the comfort of knowing you are not leaving a financial burden to your family, plan for these costs by purchasing life insurance. A policy can protect your family from spending their hard earned savings on your final expenses. These whole life insurance policies offer you and your family lifetime protection with rates that never increase.

You’ll never have to worry about losing coverage. Even if your health conditions changes your rate is guaranteed for the rest of your life. An income tax free death benefit, money that passes to your beneficiary is generally income tax free. No required medical exams. Applying for one of these whole life insurance policies is quick and easy. Simply answer a few medical questions on the application with guaranteed qualification. Every applicant can qualify for coverage.

5. Life insurance Business Buy/Sell Agreements.

Buy-sell agreements among co-owners or present and future owners of a closely-held business
are intended to assure the smooth future transition of its ownership. They provide the mechanism, and, if properly funded, the means, to effect a change in control and a transfer of interests upon the occurrence of a number of events, beginning with death, disability and retirement. We will expand on the key aspects of buy/sell agreements and work with a network of advisors to ensure you have the best mechanism possible to provide the most appropriate business succession planning possible.