There are many situations where life insurance can support the needs of a business following an individual’s death. To do the best job for your business owner clients, it’s crucial that you take the time to uncover their desires, concerns, and their needs. This would include engaging your business owner clients in a comprehensive business succession plan which involves asking good questions that will allow you to collect vital information. Below, I’ll share a list of questions that you can incorporate in your planning discussions with your business owner clients. I’ll also point you to some indicators that you should look for during your discussions, which will help you spot insurance opportunities with your business owner clients. By doing so, you’ll be able to transition your practice from a salesperson to their trusted advisor.
Setting goals is the most crucial step in the entire business planning process. You may decide to introduce this process to your business owner prospect/client as follows:
“As your Personal Financial Planner, I need to know all of your goals – dreams, commitments, obligations – in order to give you the service you certainly deserve. Please take time and be thoughtful in your responses”.
Potential Questions to ask (in no particular order)
Tell me about your business?
What is your business structure/ownership?
Would you say you are in the development, growth or mature stage of your business?
Do you hold investments in the company such as portfolios? If yes, how much and what holdings and what’s their purpose?
Does your business generate surplus cash that’s above what’s required to sustain your lifestyle goals or needed by the business?
Have these investments sacrificed in any way your Corporate Small Business Deduction, given the new rules that were implements in 2019?
What is your biggest financial worry with respect to your business?
Does your business have significant bank loans or other types of debt?
If you or a co-owner died, would these loans or general business credit be restricted or worse, called?
Is there anyone you would consider key person that is fundamental to the running and going concern of your business?
Will the loss of keyperson affect revenues (cash flow)?
How will business credit be affected?
Are there going to be credit and recruiting cost?
Who in the family is involved in your business? Have you done any planning around those that are and those that aren’t?
Do your children have a current or future role in your business? If so, which children? What about children that are not active in the business?
What do you want your spouse/children to receive at your death?
What other large assets do you own?
Are you concerned about what would happen to your business if you were to die or become disabled?
Do you have concerns about creditors?
Do you have any current or future partners in the business? If current, do you have shareholders agreements with buy-sell provisions?
From the perspective of the deceased shareholder:
Do your heirs want to be active owners or passive investors? This is important because without an agreement you heirs will inherit the shares.
If your heirs don’t want to be involved in the business is a market/buyer for the shares?
Will your heirs receive payment equal to fair market value or a discounted value of your shares?
Do you want you heirs to receive the value of your shares in cash to maintain their standard of living or do you want them to rely on the future of the business for ongoing living expenses?
From the perspective of the surviving shareholder:
Do you want to be in business with deceased shareholder’s heirs?
Do you want your hard work to pay dividends to the deceased shareholder’s heirs?
Do you want to sell personal or business assets to generate funds you’ll need to purchase the deceased’s shares?
Do you have employees to whom you wish to provide incentives?
What are your future plans for your business? (Retain, sell, or pass to successors)?
What do you see happen to your business when/if you retire?
When do you plan to retire? How will you fund your retirement?
What assets do you have besides your business?
Do you own personal or corporate life insurance, if yes how much and why did you buy it?
How important to you is to ensure your family’s assets and wealth are transferred to the next generation in the most tax efficient manner?
Do you know the amount of taxes that will be owing when your estate is transferred to your family and what is the Net Value of your Estate at that time?
If I told you that the average amount of years it takes for your asset values that are trapped within your corporation and transferred to your estate at FMV is 25 years, does that disturb you?
If I told you that the highest number of asset protection plans that are placed by insurance companies today, both in the amount of coverage and premium (in excess of billions) are with high-net-worth people like yourself, does that surprise you?
As you know good employee retention depends not only good pay and work environment, but around family benefits such as group coverage and pensions, are these important to you?
Disability Income Protection:
What monthly income (in today’s dollars) would you need if you were to become disabled? $_______
Are you dependent on your earned income to provide for your financial needs?
How long could you go without an income?
What sources of income other than disability policies would you have if you became disabled?
Which of the following is your most vital and valued asset?
__Your home __ Your auto(s)
__Your land __ Your ability to earn an income
Survivor Income Protection:
Given that you are single or married, is there anyone who is financially dependent upon you who would need income following your death?
What monthly income (today’s dollars) would that person(s) require if you were to die tomorrow?
Spotting the Opportunities:
The questions above are designed to provide you with vital information about your client’s goals and concerns. As your processing that information, it’s important to establish markers or indicators that will help you to spot potential life insurance opportunities. Below you’ll find that list of indicators. Although, this list is long, it’s far from being complete if we don’t mention disability and critical illness opportunities, as well.
LIFE INSURANCE OPPORTUNITIES
Business Loans: current or future
Collateral Insurance or Business Loan protection
Owner/Manager or other employee critical to business
Other owners – current or future
Desire to benefit key employees
Employee renumeration (i.e., Group Plan, Group RRSPs)
Children to take over business
Business Succession Planning
Capital Gains Tax Funding
Some children active in business or not
Youngish and looking for way to supplement retirement
CIRP: Corp Insured Retirement Plan or
PIRP: Personal Insured Retirement Plan
Business is generating surplus capital beyond current lifestyle/business goals
Estate Maximization/Asset diversification: Corporate Estate Bond, Personal Estate Bond, CIRP/IRP
Growing capital gains tax liability but need for cash flow to reinvest in business/investments
Immediate Financing Arrangement (IFA)
Stay tuned for September’s article as I’ll dive a little deeper into the insurance opportunities present during the development and growth phase of the business: Business Loan protection, Key Person Insurance, and Buy Sell funding.
In the meantime, to be able to identify your business owner client’s needs, you’ll need all the relevant facts. Succession planning doesn’t take place in a vacuum. It’s part of a larger planning process that called financial planning. It examines all aspects of the client’s financial situation which is designed to help ensure that (1) they have enough income in retirement to support their lifestyle goals, (2) they are currently maximizing the tax planning opportunities available to them, (3) theirs and their families and their estate needs are met in the event of disability/critical illness or premature death, (4) they have an estate plan that ensures that their estates assets go to their intended beneficiaries while minimizing taxes along the way. To give good planning advise you’ll need all the facts. Let the business owner tell you, their story.
Tony Gallippi, B.A.S (Hons.) CFP CLU
Advanced Case Consultant
This communication reflects the views of Qualified Financial Services Inc. as of the date published. The information in this publication is for general information purposes only and is not to be construed as providing individual legal, tax, financial or other professional advice. Qualified Financial Services Inc. assumes no responsibility for any errors or omissions in the information contained herein nor for any reliance placed on such information. Please seek independent professional advice before making any decisions.