Comments on: Key Man Policies May Not Cover a Buy/Sell Agreement

By: Thomas

Thomas — Tue, 14 Aug 2018 13:00:25 +0000

The trick is to get the business owner to planning table. In my 34 years of selling life insurance and disability insurance there is a significant resistance by small business owners to approach the topic. The vast majority of small business owners do not have these plans in place. It is even more critical for family businesses. I completed a large plan for a family business in 2004, the business was started in 1946. Good luck to all the life insurance purveyors out there. It’s a mine field.

By: Todd Marquardt

Todd Marquardt — Sat, 07 Oct 2017 13:21:38 +0000

A key man insurance policy is different from a buy sell insurance policy. You hit the nail on the head. The purposes are different.

By: John F. Dini

John F. Dini — Tue, 04 Nov 2014 11:25:58 +0000

In reply to RICH FREELAND CBC. Thanks Richard. I agree that key man policies should be used for critical employees as well. I know dozens of companies, however, where key man covers the owner, who does not function in a sales or client management role, and the owners' belief is that the benefit will be used to purchase stock from their families. As to the applicable IRS codes, you illustrate my point that such instruments must be carefully constructed by a professional such as you.

By: RICH FREELAND CBC

RICH FREELAND CBC — Tue, 04 Nov 2014 02:17:38 +0000

John- My 43 years in the life business has taken me into many areas of practice. The usual KEY MAN POLICY is usually designed for one purpose only.It is to cover the loss of a “Key Man” such as a top salesman that brings in more than 50% of the companies business or an engineer or project manager that a company could not operate or complete a job if they should die. Buy and Sell agreements are usually to cover owners , partnerships or corporations for death or long term disabilities to owners or stock share holders to keep the business from imploding or having to deal with non producing spouses or minor corporate owners.All these plans should be drawn up by a law firm that is experienced in Business Law! not Legal zoom! The last thing is making sure that the agreements are funded with the proper products to meet the contracts specifications in the B&S agreement. I would shy away from Sec 79 plans in funding these agreements and look at the latest IRS rulings on SEC 79 use in business insurance? Comments Welcome! RICH FREELAND CBC

By: Mike

Mike — Mon, 03 Nov 2014 16:49:03 +0000

Another type insurance to consider is whole life purchased using Section 79 Insurance.
Allows the company to pay for the insurance ( deduction to the company) owner pays tax on only part of cost, however beneficiary is the stock holders estate ( or wife) .
Company pays for policy , stockholder owns and benefits from it directly.
Can tied funding this to some part of stock valve in the future.

By: Brad Elmhorst

Brad Elmhorst — Mon, 03 Nov 2014 14:39:42 +0000

John,

Agreement that key-man insurance policies should be separate from buy/sell – ownership agreements. Having lived through the unexpected loss of two employees, I would encourage small businesses to look beyond ownership when considering key man insurance as part of their disaster planning process.

Brad

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Sun, 02 Nov 2014 20:11:59 +0000

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By: Frank Benzoni P.E. Retired

Frank Benzoni P.E. Retired — Sun, 02 Nov 2014 14:56:11 +0000

John

Another “Wide Awake Article” – To be advised is to be prepares, and you continually do that.

Always look forward to the next !!!

Thank you

Frank