• EMPLOYEE BENEFIT PLANS

    ►OTHER PLANS

    Deferred Compensation: is an executive benefit an employer can use to pay a highly paid employee at a later date,
    such as upon disability, retirement, or death.

    Salary Continuation Plan: works the same as deferred compensation except that the employer funds the plan
    rather than the employee. The employer establishes an agreement, whereby an employee will continue to receive
    income payments upon death, disability, or retirement.

    Split-Dollar Plan: is an arrangement where an employer and an employee share in the cost of purchasing a life
    insurance policy on the employee. It is a method of buying insurance, not an insurance policy itself. Many times, it is
    a combination of term and whole life insurance. This plan typically allows the employee to choose the beneficiary.




  •                   Human Life Value Approach
                      Human Needs Approach
                      Needs Based Selling




                      Cross-Purchase Plans
                      Entity Plans




                   Key Person Insurance
                   Split Dollar Plans

    USES OF LIFE INSURANCE

    The valuable role that life insurance plays in providing a death benefit
    is easily recognized. What is often overlooked or not understood are
    the many "living benefits" of life insurance-especially whole life
    insurance. Life insurance creates an immediate estate by paying a death
    benefit whenever the insured dies.The cash value feature of permanent
    insurance and the owner's right to borrow from the cash value make
    these policies an important source of funds to meet living needs.

    This section reviews the more common uses of life insurance in meeting individual needs as well as business needs,
    not only at the death of the policyowner, but also during the owner's life.


  • DETERMINING THE PROPER INSURANCE AMOUNTS

    1. Human Life Value Approach: Calculates the amount of money a person is expected to earn over his lifetime to
    determine the face amount of life insurance needed, thereby placing a dollar value on the life of an individual.

    2. Needs Approach: Calculates the amount of money a family needs immediately upon the death of the insured to
    pay for the family’s expenses and basic necessities by considering maintenance income, debts or mortgages,
    death taxes, and dependent children’s education. Needs analysis is a method of life insurance planning which
    identifies the needs of an individual and the individual's dependents.


     The needs approach to personal life insurance planning may involve creating a lump sum to provide for such things as education, retirement, and charitable bequests

     The needs approach to personal life insurance planning also includes the creation of an emergency reserve fund. This fund is designed primarily to cover the cost of unexpected expenses.

     The "needs approach" in life insurance is most useful in determining how much life insurance a client
    should apply for.

     
  • INDIVIDUAL USES FOR LIFE INSURANCE

    When working with a client, the insurance producer should consider the following individual needs.


    Final Expense Fund

    Housing Fund

    Education Fund

    Monthly Income

    Emergency Fund

    Income Needs if Disabled or Ill

    Retirement Income

    Estate Conservation (using life insurance to enable heirs to pay estate taxes)

  • BUSINESS USES OF LIFE INSURANCE

    ►BUSINESS CONTINUATION PLANS

    Third-party ownership of a life insurance is widely used in business insurance and estate-planning
    situations.
    Buy-Sell agreements are also known as business continuation agreements and are used to
    assure the ownership of the business is properly transferred upon the death or disability of an owner or partner.

    Buy-Sell Funding for Sole Proprietors

    There is a two-step business continuation plan to keep the business running after the proprietor’s death, whereby
    the employee takes over management of the business:

    Buy-Sell Plan: an attorney drafts a buy-sell plan stating the employee’s agreement to purchase the
    proprietor’s estate and sell the business at a price that has been agreed upon beforehand. This is sometimes referred to as a Stock Redemption Plan.

    Insurance Policy: the employee purchases a life insurance policy on the life of the proprietor. The
    employee is the policyowner, beneficiary, and pays the premiums. Upon the proprietor’s death, the funds
    from the policy are used to buy the business.

  • BUSINESS USES OF LIFE INSURANCE

    Buy-Sell Funding for Partnerships

    There are two types of buy-sell agreements for partnerships: cross-purchase plans and entity plans.

    Cross-purchase plans: In a cross-purchase plan, each partner buys, pays the premiums, and is the beneficiary
    of a life insurance policy on each of the other partners.
    The amount of the policy is equivalent to each partner’s
    share of the business. When one partner dies, each of the other partners receives the death benefit from the life
    insurance on the deceased partner, which is then used to buy the deceased partner’s ownership of the business.

    Entity plans: The partnership itself agrees to buy the deceased partner’s share of the business. Entity plans are
    best for businesses with several partners. In this case, the business purchases, pays the premiums and is the
    beneficiary of life insurance on each partner.

    Buy-Sell Funding for Close Corporations

    Unlike a partnership, a close corporation (i.e. an incorporated family business) is legally separate from its owners.
    It exists after one or more owners dies. A close corporation may purchase either buy-sell plans: cross-purchase or
    entity. The difference is that an entity plan is termed a stock redemption plan for close corporations. Small
    corporations often purchase life insurance on the lives of major stockholders to fund a buy-sell agreement.

  • BUSINESS USES OF LIFE INSURANCE

    Close Corporation Cross-Purchase Plan

    Similar to partnership cross-purchase plans, a close corporation cross-purchase plan requires surviving stockholders to
    purchase the deceased stockholder’s interest in the company, and the deceased stockholder’s estate to sell the
    interest to the surviving stockholders. The corporation is not part of the buy-sell plan. Each stockholder owns,
    pays the premiums, and is the beneficiary of life insurance on each of the other stockholders in an amount equal
    to his share of the corporation’s purchase price.

    Close Corporation Stock Redemption Plan

    Similar to the partnership entity plan, the corporation purchases, is the owner, pays the premiums, and is the
    beneficiary of life insurance policies on each stockholder. The amount of life insurance is equal to each
    stockholder’s share of the corporation’s purchase price. When a stockholder dies, the corporation purchases, or
    redeems, the deceased stockholder’s share.

    Key Person Insurance

    The purpose of key person insurance is to prevent the financial loss that may ensue when an owner,
    officer, or manager dies. The company purchases, owns, pays the premiums, and is the beneficiary of the
    life insurance policy on the key person. This allows the business to pay for:

    Finding and training a replacement if the key person dies prematurely.

    The reduction of profits resulting from the key person's death

    The loss of new business resulting from the key person's death

    The loss of leadership resulting from the key person's death

  • EMPLOYEE BENEFIT PLANS

    ►OTHER PLANS

    Deferred Compensation: is an executive benefit an employer can use to pay a highly paid employee at a later date,
    such as upon disability, retirement, or death.

    Salary Continuation Plan: works the same as deferred compensation except that the employer funds the plan
    rather than the employee. The employer establishes an agreement, whereby an employee will continue to receive
    income payments upon death, disability, or retirement.

    Split-Dollar Plan: is an arrangement where an employer and an employee share in the cost of purchasing a life
    insurance policy on the employee. It is a method of buying insurance, not an insurance policy itself. Many times, it is
    a combination of term and whole life insurance. This plan typically allows the employee to choose the beneficiary.




  •                   Human Life Value Approach
                      Human Needs Approach
                      Needs Based Selling




                      Cross-Purchase Plans
                      Entity Plans




                   Key Person Insurance
                   Split Dollar Plans

    USES OF LIFE INSURANCE

    The valuable role that life insurance plays in providing a death benefit
    is easily recognized. What is often overlooked or not understood are
    the many "living benefits" of life insurance-especially whole life
    insurance. Life insurance creates an immediate estate by paying a death
    benefit whenever the insured dies.The cash value feature of permanent
    insurance and the owner's right to borrow from the cash value make
    these policies an important source of funds to meet living needs.

    This section reviews the more common uses of life insurance in meeting individual needs as well as business needs,
    not only at the death of the policyowner, but also during the owner's life.


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