Archive for the ‘My Blog’ Category

How to Live for Today and Still Save for Tomorrow

Whether you dream of traveling around the world or buying a yacht, here are five steps that can help make it happen.
By Deborah L. Meyer, CFP(R), CPA, | WorthyNest LLC – February 2017
Recently, I attended the funeral of a friend. It got me thinking about life and death. Without getting too morbid or philosophical, let’s focus on a tangible financial question related to the circle of life:
The Best Investment You Can Make Isn’t in Your 401(k)

How do you live life to the fullest now, yet simultaneously save for the future?

Maybe some examples will help. Let’s suppose you get the sudden urge to travel to Fiji. The adventurous, live-life-for-the-moment part of you says, “Let’s buy the plane ticket,” while the practical, level-headed side says, “Let’s hold off and spend some time thinking about a trip like this.”

We each have a money personality shaped by our natural propensity to save or spend. If your natural tendency is to spend, do you buy the plane ticket right now? NO. If your natural tendency is to save, do you dream about the Fiji trip but never take it? NO.
Put a dollar figure on your dream

Instead, I propose a hybrid solution: Plan for the trip. Research how much it costs and how long you want to stay. Decide on a specific dollar amount you need to take the trip, and figure out how much you’ll need to save each month to meet the goal.

If it costs $10,000 to fund the trip and you can only save $100 a month, you’ll be waiting a long time to take that trip. Either figure out a way to cut the costs … perhaps going to a destination within the U.S. you haven’t traveled to before, or maybe working a “side hustle” to set aside extra money for Fiji.

Here’s another real-life example. My good friend (let’s call him Dan) lost his dad suddenly to a heart attack. Dan’s parents were divorced, and Dan was an only child. So, as a 20-something, he inherited quite a bit of money. Such a tragic event in Dan’s life spurred him to appreciate his own life, so he wanted to travel around the world for a year. Did he start the voyage soon after the funeral? No. Instead, he turned to me in a time of need and asked for financial guidance. I said, “If you’re going to quit your job, you need to have a plan for paying the bills while taking this amazing adventure.”

Dan was disciplined: He took my advice and budgeted for the trip. In fact, he did so well with budgeting (and investing) that he and his girlfriend easily paid for the trip. When Dan returned to the U.S., his inheritance was as large as when he received it! He went on a real African safari, backpacked across Europe and South America and proposed marriage at the Great Wall of China.

A 5-step make-it-work plan

With proper planning and discipline, dreams truly may become reality.

Your dreams are different than mine. Regardless of the goal, follow these simple steps to transform an aspiration into a real experience:
?Step 1. Identify the BIG goal, and translate it into a dollar amount.
?Step 2. Take the big dollar goal, and break it into smaller pieces — monthly or quarterly is typically best. Figure out if this goal is attainable over your desired time frame.
?Step 3. If the dollar amount is out of reach, there are three options: 1) increase your income, 2) cut current expenses, or 3) adjust the goal downward to something more realistic.
?Step 4. Do not compromise. Work toward this goal with fervor and discipline.
?Step 5. Once you’ve hit the goal, give yourself a big pat on the back. You deserve it!

Obviously, if you’re married, it would be important to include your spouse in these discussions to make sure you’re in agreement. This is one area where couples can struggle. You may work toward one goal, while your spouse is focused on an entirely different goal. It all comes back to communication.

Feeling inspired? Channel that energy by asking yourself two final questions: What is your dream? What steps are you taking to achieve it?

Hating to Lose Money Can Cost You Big

In fact, people dislike it twice as much as they like earning money. Here’s why that can be a problem and what you can do about it.
By Michael Krumholz, Investment Adviser | CFG – February 2017
Imagine that you have been given $1,000, with the following two options:

Option A:  You are guaranteed to win an additional $500.

Option B:  You can flip a coin, and if it comes up heads receive another $1,000; tails, nothing more.

Which do you choose?

Now imagine that you are given $2,000, and these two options:

Option A:  You are guaranteed to lose $500.
Option B:  You can flip a coin, and if it comes up heads, you lose $1,000; tails you lose nothing.

Which do you choose?

Most people (perhaps you?) choose A in the first scenario and B in the second. In both Option A’s, you finish with a sure gain or loss and a final number of $1,500. Option B’s give you an even chance of ending up with $1,000 or $2,000. But think of the choices this way: By choosing A in the first case and B in the second, it shows an inclination to be more conservative if you can lock in a sure profit, but an inclination to be more risky if you potentially can avoid losses.

The idea of losing $500 guaranteed is so painful that you would rather risk $1,000 to avoid that guaranteed loss. Or the idea of letting the $500 slip away in the first scenario for the chance of gaining $1,000, is discomforting enough to cause you to opt for the sure thing.
Here’s how that translates into financial decisions. If you have lost a lot of money in the stock market, there is a temptation to gamble big in the hopes of recouping it. If you have gained money, you have a tendency to be more conservative and lock in gains, even if they are small.

Welcome to Prospect Theory, which says that people assign values to the gains or losses themselves, based on their own merits, or in other words, on the immediate value of the gain or loss. And the pain of loss is a stronger motivator than the reward of gain.

It is the actual gaining or losing, rather than how the gains or losses leave our balance sheets overall, that affects us more. In fact, according to research by Kahneman and Tversky, people react more strongly to the pain that comes with loss than they do to the pleasure that comes with an equal gain.

So if you had $1 million and lost $100,000, you would feel the pain of that loss twice as much as you would feel pleasure from gaining $100,000. Sure, you like the idea of gaining, say, $500 or $1,000, the researchers found, but only because you like winning and dislike losing. And you dislike losing about 1.5 to 2.5 times more than you like winning. This is called the “loss aversion ratio.” It explains why, when faced with tough choices such as where a sure loss is compared to a larger loss that is merely probable, most people will take more risk than they otherwise would.
Is loss aversion a bad thing? Not always. Take lifetime savings for those in retirement or close to retirement. Better to care about falling too far, than continuing to climb to find richer rewards. But oversensitivity to loss can also have negative consequences — panic selling, for example. The injured want to stop the bleeding. They don’t always consider the misgivings they’ll have when the markets go back up again and they are sitting on the money under their mattress.

According to finance professor H. Nejat Seyhun at the University of Michigan, if you had missed the 90 best-performing days of the stock market from 1963 to 2004, your average annual return would have dropped from almost 11% to slightly less than 3%. That’s 10,573 trading days. If you missed 90, or about 0.85% of the days, a $1,000 investment would have been worth around $3,200, not $74,000.

There’s another pitfall. Loss aversion can cause investors to hold on to losing investments for longer than they should. A revealing study by Terrance Odean (University of California-Berkeley) and Brad Barber (University of California-Davis) found that investors were far more likely to sell stocks that had risen in price than to sell those that had fallen. The researchers analyzed trading records of 10,000 accounts at a large discount brokerage from 1987 to 1993. Their findings: The stocks that the investors had sold outperformed the stocks they had kept by another 3.4%.

Most people are more willing to lock in a sure gain that comes from selling a winning stock or fund than they are willing to lock in a sure loss of selling a losing investment, even though for some good reasons, it makes more sense to sell losers and keep winners. The prospect of selling a losing investment makes investors more willing to hold on in the hope that if they wait long enough, the stock will rise; the risk being that the stock value will remain lower or drop even further. And if they don’t sell, the loss is only a “paper loss.”

Some parting thoughts for consideration: Assume you are more sensitive to losing money than you think. Diversify not just by asset types but by the time frame involved. Consider when you’ll need to draw on the investment. The longer time period you have before you need the money, the more risk you can take, and the more equity investments you can hold.

There is rarely any consistency in the uphill battle to manage one’s portfolio. What ends up being critical is making sure the investment money is there when you need it. If monies are needed in the short run, whether it be for college planning, upcoming housing expenses or travel plans, portfolio holdings and strategies will be directed to those needs. And those holdings will have different characteristics than the part of the portfolio that is earmarked for funds needed in the long term. We call this Portfolio Mapping, where time is used as a primary determining factor in the way you construct a portfolio.

Portfolio Mapping identifies the goals you are trying to achieve and the purposes for your investments to different parts of your overall portfolio. This mapping process allows you to track how well your investments are set up to reach your goals.

What does this mean for investors? As much as you hate losing and love winning, investors who are the real winners develop a plan that allows for the money to be available when it is needed.

Indexed Universal Life: Cash, Flexibility And Safety

By Stephanie Powers | Updated September 11, 2014 — 6:00 PM EDT

What if you could get the flexibility of adjustable premiums and face value, and an opportunity to increase cash value; would you go for it? What if you could get this without the inherent downside risk of investing in the equities market? It’s your lucky day: All of this is possible with an indexed universal life insurance policy. These policies aren’t for everyone, so read on to find out if this combination of flexibility and investment growth is a good fit for you.

What’s Universal Life?
Universal life insurance  (UL) comes in a lot of different flavors, from fixed rate models to the variable ones, where you select various equity accounts to invest in. Indexed universal life (IUL) allows the owner to allocate cash value amounts to either a fixed account or an equity index account. Policies offer a variety of well-known indexes such as the S&P 500 or the Nasdaq 100. IUL policies are more volatile than fixed ULs, but less risky than variable universal life policies because no money is actually invested in equity positions. (For an introduction to life insurance, see Intro To Insurance: Types Of Life Insurance.)

IUL policies offer tax-deferred cash accumulation for retirement while maintaining a death benefit. People who need permanent life insurance protection but wish to take advantage of possible cash accumulation via an equity index might use IULs as key-person insurance for business owners, premium financing plans or estate-planning vehicles. IULs are considered advanced life insurance products in that they can be difficult to adequately explain and understand. They are generally reserved for sophisticated buyers. (For more, read Top 10 Life Insurance Myths.)

How Does It Work?
When a premium is paid, a portion pays for annual renewable term insurance based on the life of the insured. Any fees are paid, and the rest is added to the cash value. The total amount of cash value is credited with interest based on increases in an equity index (but it is NOT directly invested in the stock market). Some policies allow the policyholder to select multiple indexes. IULs usually offer a guaranteed minimum fixed interest rate and a choice of indexes. Policyholders can decide the percentage allocated to the fixed and indexed accounts.

The value of the selected index is recorded at the beginning of the month and compared to the value at the end of the month. If the index increases during the month, the interest is added to the cash value. The index gains are credited back to the policy either on a monthly or annual basis. For example, if the index gained 6% from the beginning of June to the end of June, the 6% is multiplied by the cash value. The resulting interest is added to the cash value. Some policies calculate the index gains as the sum of the changes for the period. Other policies take an average of the daily gains for a month. If the index goes down instead of up, no interest is credited to the cash account. (For an in-depth introduction to indexes, check out our Index Investing Tutorial.)

The gains from the index are credited to the policy based on a percentage rate, referred to as the “participation rate”. The rate is set by the insurance company. It can be anywhere from 25% to more than 100%. For example, if the gain is 6%, the participation rate is 50% and the current cash value total is $10,000, $300 is added to the cash value [(6% x 50%) x $10,000 = $300].

IUL policies typically credit the index interest to cash accumulations either once a year or once every five years.

What’s Good About a UIL Policy?
1.Low Price: The policyholder bears the risk, so the premiums are low.
2.Cash Value Accumulation: Amounts credited to the cash value grow tax deferred. The cash value can pay the insurance premiums, allowing the policyholder to reduce or stop making out-of-pocket premiums payments.
3.Flexibility: The policyholder controls the amount risked in indexed accounts vs. a fixed account; the death benefit amounts can be adjusted as needed. Most IUL policies offer a host of optional riders, from death benefit guarantees to no-lapse guarantees.
4.Death Benefit: This benefit is permanent.
5.Less Risky: The policy is not directly invested in the stock market, thus reducing risk.

What’s Bad About a UIL Policy?
1.Caps on Accumulation Percentages: Insurance companies sometimes set a maximum participation rate that is less than 100%.
2.Better for Larger Face Amounts: Smaller face values don’t offer much advantage over regular universal life policies.
3.Based on an Equity Index: If the index goes down, no interest is credited to the cash value. (Some policies offer a low guaranteed rate over a longer period). Investment vehicles use market indexes as a benchmark for performance. Their goal is normally to outperform the index. With the IUL, the goal is to profit from upward movements in the index.

Conclusion
While not for everyone, indexed universal life insurance policies are a viable option for people looking for the security of a fixed universal life policy and the interest-earning potential of a variable policy. (For more insurance, check out our Investopedia Special Feature: Insurance 101.)
Read more: Indexed Universal Life: Cash, Flexibility And Safety | Investopedia http://www.investopedia.com/articles/insurance/09/indexed-universal-life-insurance.asp#ixzz4c6BBGanc

Four components to include in your business plan

By Wells Fargo | February 02, 2016 — 12:00 AM
A business plan is a roadmap for your business. It lays out the key milestones and routes to grow your business. Taking the time to chart a clear sense of direction will improve your prospects for success.

“We’re human, and one way we do better at complicated things like running a business is by writing things down, which helps us break complex tasks into multiple steps and components that we can track and manage,” says Tim Berry, author of Lean Business Planning: Get What You Want from Your Business. “Just like a GPS, it helps you keep track of your destination and adjust your route if you run into traffic on the way.”

Berry likens a business plan to a roadmap that helps you keep track of your destination.

“Taking the time to chart a clear sense of direction will improve your prospects for success.”

These four components are crucial to development of a business plan:

Section #1: Company operations

Think of the company operations section as the abbreviated version of your business plan. Encompassing the past, present, and future — where you are, where you’ve been, and where you want to go — it includes an executive summary of your company, including who’s running it, what you sell, and who you sell to. It includes strategic and financial highlights, such as growth history, revenue projections, and key differentiators.

This section of your business plan should answer the questions, “Who are you?” and “Why do you exist?” Important components include your company’s history, mission and vision, legal structure, leadership, and products or services. These latter two pieces are the most important and typically constitute their own sections in business plans targeting investors.

“Investors want to know who’s in charge, so the backgrounds of the management team and the founders are really important,” Berry says. “In terms of products, they want to know what you sell, how it’s sourced, what technology it uses, and who owns any associated patents.”

Section #2: Market analysis

The second section should comprise a market analysis, key components of which are:

A description and outlook outlining the size and growth rate of your industry


Information about your target market, such as its size and composition, including customer demographics and psychographics


A summary of your market share and geographic reach


A competitive analysis


A traditional SWOT analysis breaking down your strengths, weaknesses, opportunities, and threats
Section #3: Marketing plan

This section is where the rubber meets the road. Use it to present specific sales and marketing plans and strategies. A good place to start is your plans for advertising, digital marketing, and grass-roots marketing, including how you’re going to promote your business to prospects and customers. From there, detail your market penetration, pricing, growth, sales, and distribution strategies.

Section #4: Financials

A business plan is as much a health check as it is a growth plan, so a section dedicated to finances is critical. If you own an existing business, include three to five years worth of historical financial data, including income statements, balance sheets, and cash flow statements.

No matter how established your business, provide a five-year forecast that includes projected income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, projections should be monthly or quarterly. For years two through five, they can be quarterly or annual. Either way, charts and graphs can be stronger than words and phrases.

Don’t avoid creating a business plan because it seems like busy work. Treat it like a tool instead of a term paper, and you’ll find that it’s worth the effort.

“A business plan helps people who are starting or running a business focus on what they’re going to do and when they’re going to do it,” Berry says. “It helps you run your business better.”

If you’re ready to learn more about creating a business plan, check out our Business Plan Center or if you are ready to start drafting one, use our Business Plan Tool.
Information and views provided by Wells Fargo is general in nature for your consideration and are not legal, tax, or investment advice. Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties, does not endorse any non-Wells Fargo companies, products, or services described here, and takes no liability for your use of this information. Information and suggestions regarding business risk management and safeguards do not necessarily represent Wells Fargo’s business practices or experience. Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information.
Read more: Four components to include in your business plan http://www.investopedia.com/sponsored/#ixzz4c6BTqg00

Three strategies to drive business growth

By Wells Fargo | June 30, 2016 — 11:58 PM

It’s a common scenario. Once you’ve been in business for a while, you notice your sales are flat. You need to grow in order to stay competitive, but it’s easy to get stuck if you don’t have a solid growth strategy in place.

Get on the path to growth with one of three tried-and-true strategies: You could provide new products or services to new customers, sell existing products in new markets, or offer new products to current customers.
“Using any or all of these three business growth strategies can help you breathe new excitement — not to mention revenue — into your business.”

Here’s what you should know about each approach to growing your business.

#1. Diversification: New products or services to new customers

Sometimes, there just isn’t enough demand among existing customers to grow your business. If that’s the case, your best bet might be selling something new to a new customer base.

For example, an accounting firm that specializes in tax preparation may seek to diversify by offering additional services, such as wealth management or estate planning. By expanding outside its core competency, it can reach new customers. Broader offerings allow for greater growth potential.

Still know that this approach isn’t without risks. “Diversification, as defined as introducing new products into new markets, is a risky strategy because you don’t know whether the new product or service you’re introducing and the new customers you’re pursuing will pay off,” says small business strategist Jackie Nagel, president of Synnovatia, a small business consultancy in San Pedro, California. “A strategy of diversification typically requires you to spend more on market research and product development. You’ve got to have the resources to be able to afford the risk.”

#2. Market development: Existing products or services to new customers

Alternatively, you may opt to enter a new market, which involves introducing your existing products or services to new customers. Those new customers could be in a different geographical area than you currently serve, or they could be a different demographic.

If you own a lawn care business that serves residential homeowners, for instance, you could start pitching your services to businesses or corporations. Customers need what you already offer, which may require an investment in sales and marketing, but not in product development. Your firm already has the equipment and trained staff, so your main hurdle would be getting your name out to prospective customers in the business world.

#3. Product or service development: New products or services to existing customers

Another strategy is product or service development. Instead of introducing existing products or services to new customers, you develop new products or services for existing customers.

Let’s say you own a small manufacturing firm that produces airplane components. Because you understand your customers — large aerospace companies — and their evolving needs, you are ideally positioned to expand your product line. Your insights into their supply chain, pain points, and preferences give you an important advantage over your competitors.

“For most businesses, product development is probably one of the best growth strategies because it doesn’t carry a lot of risk,” Nagel says. “You’re tapping into a marketplace that you already know, and that makes things a lot easier, especially from a sales and marketing standpoint.”

Using any or all of these three business growth strategies can help you breathe new excitement — not to mention revenue — into your business.

Leverage our business plan resources to help chart your path to growth.

Information and views provided by Wells Fargo is general in nature for your consideration and are not legal, tax, or investment advice. Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties, does not endorse any non-Wells Fargo companies, products, or services described here, and takes no liability for your use of this information. Information and suggestions regarding business risk management and safeguards do not necessarily represent Wells Fargo’s business practices or experience. Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information.
Read more: Three strategies to drive business growth http://www.investopedia.com/sponsored/#ixzz4c6Bp51Ic

Why Your Family Business Needs a Succession Plan
By: Kathy Boyle  March 22, 2017
Succession is not the end.

Many business owners love what they do and cannot imagine a life without their enterprise intricately involved in their day to day cadence. Family businesses comprise two-thirds of global businesses, account for 70-90% of GDP, 50-80% of jobs, and 85% of start-ups are funded by family enterprises according to the Conway Center for Family Business. So family-owned businesses play a huge role in the fabric of our economies.

Almost 60% of all businesses have CEOs over the age of 55 and one-third are over 65. Surveys state that 51% expect to retire or hand over control over the next decade. About half expect to sell to a third party while half expect the next generation, employees or management, to succeed them.

In 2017, 40.3% of family business owners expect to retire or transition over the next few years, yet less than half have selected a successor. Estimates are that 43% have no succession plan in place. Approximately 70% would like the next generation to take over but they have no formal plan in place. All too often, not wanting to discuss mortality, fear of boredom after retiring and anxiety over familial issues are reasons for procrastination. (For related from this author, see: Successful Succession Plans Depend on Your Team.)
Shirt Sleeves to Shirt Sleeves

This is the proverb describing what happens to many family enterprises. In Japan, the expression goes “Rice paddies to rice paddies in three generations.” And the Scottish say, “The father buys, the son builds, the grandchild sells and his son begs.” So the issue of generational success is global.

Only 30% of businesses survive into the second generation and 12% into the third while 3% make it to the third and beyond. The founder often comes from a life of hardship and is determined to make something better for themselves and their family. They begin by rolling up their shirt sleeves and working hard to build an enterprise. The next generation typically is more educated, has grown up watching their parents work hard and while they now live more comfortably, they remember the struggle. This generation often introduces new markets, products or technology to the business and helps it grow. Very often the founder is still an active participant in the business. But this is where things go awry and there are many reasons for it. (For related reading from this author, see: Keep the Family Business Going With a Succession Plan.)

The third generation has no memory of hard work or struggle as they grew up affluent. All too often, this generation either lives a lavish lifestyle or attempts new ideas without risk management and squanders the wealth.

Studies show that the reasons for failure are concentrated. The number one reason for failure is lack of communication and trust. That factor alone accounts for 60% of failures according to research by Williams and Preisser in 2003. The same study states that another 25% of failures result from a lack of preparedness for the next generation to assume control. All the myriad other reasons such as poor planning, lack of good legal, tax or financial advice, etc. account for just 15% of failures. It would behoove any family to create a structure where communication and trust is developed and training takes place to allow the future leaders to be prepared.

An outside advisor can orchestrate the plan to help the current leaders communicate what they would like to have happen and implement structure to prepare the next generation for success. This is a process, and the earlier the business owner begins the easier it will be to address the necessary protocols and steps to help secure the family business. (For more from this author, see: Prenuptial Agreements and Family Businesses.)
Read more: Why Your Family Business Needs a Succession Plan | Investopedia http://www.investopedia.com/advisor-network/articles/have-succession-plan-your-family-business/#ixzz4c6CBZ06s

How and Why Businesses Should Insure Key Personnel

By:  Steve Kobrin, LUTCF  March 20, 2017
As any business owner knows, when it comes to running a company, everyone counts. You can’t bring in money without a sales force. You can’t count the money without an accounting department. You can’t run the computers without an IT specialist. You can’t secure the building without security personnel. And you can’t keep the floors clean without the maintenance staff.

The same goes for every clerk, administrator, secretary, supervisor, manager and executive. Your business runs on the shoulders of many people in a variety of positions. Have you made sure that the loss of a key player won’t harm your business? (For more, see: How to Use Life Insurance as an Executive Benefit.)
Why Insurance Coverage Is Needed

While everyone is integral, some people play principal roles. For example, revenue may suffer if you lose a top salesperson and investors and shareholders might get anxious if you lose a chief executive. Clients and vendors might get nervous if a key manager leaves, and future production may be jeopardized if you lose a key technician, inventor, scientist or idea person.

These situations show why businesses insure leading personnel. They take out life insurance to protect themselves against the loss of men and women whose death could impair the operation. The insurance benefit protects you by giving you the time needed to recruit the right replacement. In the meantime, client service continues, bills get paid and employees have reassurance that the show will go on. Business can take place as normal.

Here are three quick tips for business owners to make the right decisions when insuring key personnel. (For related reading, see Asset Protection for the Business Owner.)
1. Determine the Policy’s Face Amount

How do you value the services of primary employees? Your answer to that question will vary according to the role they play. The service of a key chief executive would be assessed differently than the service of a key technician. Your firm’s accountant or chief financial officer should consult with an insurance company advisor to calculate the appropriate insurance benefit for your situation.
2. Decide on a Time Period

Key person coverage came about at a time when the main employees tended to make long-term commitments to their employers. Today, many key men and women tend to switch jobs more frequently. If you think that is the case in your business, then term insurance might be more applicable than permanent insurance.
3. Establish Your Options

What should you do with the policy on a vital person if he or she does leave? You have a number of options to choose from. You could simply terminate the policy or, if it is a cash value policy, you might be able to surrender it for value. In some cases, the former employer keeps the policy in force and collects the benefit when the former employee passes away. The policy may also be sold for cash in a life settlement depending on the age, medical condition of the insured and other factors related to the policy. (For more from this author, see: Using Life Insurance as a Business Succession Plan.)
Read more: How and Why Businesses Should Insure Key Personnel | Investopedia http://www.investopedia.com/advisor-network/articles/how-and-why-businesses-should-insure-key-personnel/#ixzz4c6CUWXhV

Using Life Insurance as a Business Succession Plan

By Steve Kobrin, LUTCF  February 10, 2017
It’s a common practice for business owners to take on partners. While there are many reasons why you may want to take this step, there are also some crucial things to consider when entering into a business partnership. What legal bases do you need to cover? How can life insurance protect you, your business and your family?
What a Business Partnership Looks Like

Some business owners enter a partnership because they need someone to complement their personal strengths. For example, one person could be an expert in operations, the other in sales and marketing. Sometimes professionals with the same area of specialization will join together to serve more clients. In other arrangements, one partner could be passive and responsible primarily for funding, while the other is the active manager of the enterprise.

The partnership could and should be a very structured relationship. A legal agreement should be formulated and should cover all the financial technicalities such as the percentage of ownership, tenure of the partnership, how and when the business is to be valued, etc. It should also plan for events that may dissolve the partnership, such as the death, disability, long-term sickness, or early retirement of a partner. (For related reading, see: 4 Business Partnership Mistakes to Avoid.)
How Life Insurance Can Help

Life insurance plays a key role in the funding of a partnership agreement. When a partner dies, that person’s spouse or estate will probably end up with his shares of the business. The surviving partners want those shares, but they need money to buy them. Life insurance can provide the exact amount of money to do that at the exact time it is needed. It is typically a much more economical way of taking care of things compared to other options such as taking cash out of the business, selling assets or borrowing from a bank.

What are some integral pieces to consider when using life insurance to fund your partnership agreement?
1. Finalize Your Partnership Agreement

Before you do anything else, get the arrangement finalized before you get approved for your policy. There is nothing worse than getting approved at a great rate, only to delay paying for the policy because the legal work has not been completed. Until it is, you won’t have coverage and something disastrous could happen that could either raise the price significantly or disqualify you altogether.
2. The Cost of Life Insurance Will Vary

Remember that not everybody qualifies for the same price. Each person represents a different risk profile to a life insurance underwriter. Age, gender, smoking status, health history and a multitude of other factors affect the rate. Don’t expect life insurance to cost the same for each partner.
3. Explore Your Policy Ownership Options

Research your options for policy ownership. In some instances, your business should be the owner and the beneficiary of the policies. In other cases, partners should own policies on one another. Talk this through with your business advisor to make sure your policies are issued correctly and fit your needs.

Life insurance is critical for business owners. It covers you, your business, your partner, and your families, and can be a game changer if the unexpected occurs. Don’t get caught without it.

(For more from this author, see: How to Use Life Insurance as an Executive Benefit.)
Read more: Using Life Insurance as a Business Succession Plan | Investopedia http://www.investopedia.com/advisor-network/articles/021017/using-life-insurance-business-succession-plan/#ixzz4c6Cjwlha

How to Use Life Insurance as an Executive Benefit
By:  Steve Kobrin, LUTCF  February 6, 2017
As a business owner, you invest copious amounts of time, money and energy into your employees. Don’t you want your investment to pay off? Employee turnover can be extremely costly to your business, and this is especially true when it comes to key executives.
The Costs of Turnover for the Business

When you lose indispensable employees, money has to be reallocated to provide for recruiting, training, orientation and management of a new hire. It can also take a lot of time to ensure that you find someone who is the best fit for the role. The longer the recruitment process takes, the more the business is exposed to a setback. (For related reading, see: The Cost of Hiring a New Employee.)

This is why companies spend significant amounts of money on compensation packages for key executives. The longer they can get these men and women to stay in their employment, the better return they get on their investment in them. Employers are always looking for benefits that can be legitimately offered to selected personnel only. How does life insurance fit into this equation?
Life Insurance as a Benefit

Life insurance is frequently at the top of this select benefit list. If a number of factors fall into place, then the use of this product can be a big win for both the executive and the firm. Here are some factors that will ensure the success of life insurance for this purpose:
The executive should have a need for life insurance for personal reasons, such as family protection and retirement planning.
The executive qualifies for a policy that can provide both significant cash accumulation and a sufficient survivor benefit.
The executive is willing to let the firm control policy proceeds.

If your executives meet these criteria, what are some tips to take into consideration?
The Importance of Underwriting

The lower the cost of the insurance, the higher cash value and survivor benefit a policy will provide. If the executive qualifies for a comparatively low rate, then additional money can be paid into the policy for use in retirement, as well as for the protection of beneficiaries. If the executive has a chronic illness or another higher-risk factor that drives up the cost of coverage, a policy may still be a worthwhile bonus from the employer. Be sure to contact your life insurance provider to talk through any extenuating circumstances and how they could affect the policy. (For related reading, see: How Cash Value Builds in a Life Insurance Policy.)
Seek Advice on Premium Payments

The whole point of this benefit is for the employer to subsidize the cost of a life insurance policy that can have a major impact on the life of the executive. Because these policies can cost substantial amounts of money, the employer will take on a considerable expense in financing them. Make sure your financial experts talk to your insurance advisor about how to minimize the tax impact for both your firm and your executive. (For related reading, see: Understanding Taxes on Life Insurance Premiums.)
Implement Sensible Policy Controls

The primary purpose of providing this benefit is to lock executives into a commitment that protects the business. What kind of stipulations can be applied to ensure the benefit pays off? One option is to build controls into the executive’s contract that give access to increased policy benefits over time. Secondly, provisions can be made to reimburse the employer for the expense while still providing the executive with a lucrative cash account and survivor benefit. Speak to your business advisor to review your options in this regard.

You build your business to be successful and a major piece of that success is in holding onto key personnel. Don’t overlook the importance life insurance can play to ensure loyalty from your chief executives. (For more from this author, see: How to Buy Life Insurance With an Alcohol History.)
Read more: How to Use Life Insurance as an Executive Benefit | Investopedia http://www.investopedia.com/advisor-network/articles/020617/how-use-life-insurance-executive-benefit/#ixzz4c6CyMS5T

When and How to Insure Your Income

By Leslie Kramer | April 4, 2016 — 10:52 AM EDT
Life is full of calamities. That’s why insurance was invented — people buy life insurance, auto insurance, flood insurance. But what about the one asset you have that allows you to pay for all those insurance policies? That would be your income, which most people don’t think about insuring.

It’s understandable that most workers envision or at least hope that they will remain strong, healthy and able to continue working up until retirement. But unfortunately, that is not always the case. If misfortune does strike, a steady flow of income may be the only way to get through it financially.

Here are some things to think about when it comes to insuring your income. (For related reading, see: 7 Issues to Consider When Determining Life Insurance Coverage.)

Benefits of Disability Insurance

There are many types of income insurance; disability insurance is the most common as it provides a way for people to insure their income and protect their family’s assets if an illness does occur. Many people mistakenly believe that once they have purchased a life insurance policy, they have sufficiently protected their family financially in the case of an untimely death. That may be true, but what if that income earner becomes injured in a car accident or contracts a long or short-term illness and is unable to continue working? In this scenario, life insurance won’t be of much help.

That’s why more and more financial advisors are suggesting that their clients purchase disability income protection insurance, which will typically replace a portion of one’s income if the policyholder suddenly becomes unable to work due to an accident, illness or a disability. There are many different types of these policies available and while their terms may differ, most will continue to pay one’s salary until the policyholder can start working again or passes away.

Typically, there’s a waiting period before a disability policy kicks in, but it will usually start paying out immediately after any sick pay from an employer ends. The amount a policy pays out may decrease over time, but most will continue to cover the policyholder during the period of time that their illnesses leaves the policyholder unable to work. Some payouts may only continue until the policy expires, which may be at the end of a stated period, or when the person reaches retirement age. (For related reading, see: Understanding the Different Types of Life Insurance.)

In this way, disability income policies differ from critical illness insurance, which pays just a single lump-sum payment if the policyholder is impacted with a serious or life threatening disease. Short-term disability income protection insurance may also differ from a more standard plan in that it pays out a monthly sum in relation to one’s income for just a set or limited period of time.

High Costs of Being Sick

The high day-to-day costs of maintaining a household while out of work can be daunting, but many people are shocked to find out how much an illness can end up costing them in terms of medical bills — even if they have health insurance. There are often additional doctor bills and hospital costs that are not covered by insurance, and these costs can add up to the point of being overwhelming.

The various types of disability income insurance can help cover those costs and can help a family avoid going into bankruptcy in the most extreme cases.

Disability insurance is not the only type of insurance that can help protect one’s income during difficult times. There are also income insurance products that only kick in when someone becomes unemployed. Unemployment protection insurance, also referred to as redundancy insurance, protects policyholders’ incomes if a person suddenly loses their job for any variety of reasons; it pays out a monthly sum for a set period of time. These policies typically cover the portion of a person’s weekly salary that is not covered by government unemployment benefits. (For related reading, see: Choosing the Best Disability Insurance.)

Mortgage payment protection insurance is another type of insurance that can be extremely beneficial if a person loses his or her income. These policies protect policyholders by paying out the equivalent of their monthly mortgage payments during any period in which they become unable to work.

The Bottom Line

No one’s ability to keep producing income is guaranteed. That’s why purchasing income insurance may be the best way to protect one’s assets in the event of any type of devastating loss. (For related reading, see: Let Life Insurance Riders Drive Your Coverage.)
Read more: When and How to Insure Your Income | Investopedia http://www.investopedia.com/articles/personal-finance/040416/when-and-how-insure-your-income.asp#ixzz4c6EbkV1d


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