When I get asked what I do, I tell people I’m a Life Insurance Advisor to High and Ultra High Net Worth Entrepreneurs.
A common follow-up question is: Do entrepreneurs use Life Insurance differently?
After having specifically served this segment for over 10 years now, I can confirm that entrepreneurs, especially High Net Worth entrepreneurs do indeed use Life Insurance in different ways to, say, a Fortune 500 CEO.
Some of these applications of Life Insurance for entrepreneurs are straightforward. Others are slightly more creative ways of managing and protecting a business, the entrepreneur’s personal assets, and their legacy.
In this article, I’m going to explore seven ways in which High and Ultra Net Worth Entrepreneurs use Life Insurance.
For Business Protection
- Partnership Insurance
Partnership Insurance is a specific type of business protection insurance structure. It provides liquidity to a business to buy the deceased partner’s shares from their next of kin.
To put it simply: If your business partner passed away, and their shares got transferred to their spouse, would you like to be in business with their spouse? Would they like to be in business with you? Maybe, maybe not.
Partnership Insurance creates options for both partners and their beneficiaries and gives the business the best possible shot at thriving even after the loss of a partner.
Here’s how Partnership Insurance works and here’s a Partnership Insurance case study to dive into.
- Key Person Insurance
Every business has a core team – those essential few team members that are the most significant contributors to the bottom line. These team members are typically in the C-suite of a company, but could also be the top salesperson or anyone else that generates a large portion of a company’s revenue.
In other words, losing this person means the company would take a significant financial hit.
Key Person Insurance is an Insurance Policy that is purchased by a company against its key team members. In the event of the death or critical illness of a key person, the company (also the beneficiary) would receive a sum of money to help compensate for the loss of the said key person.
Here’s a case study of how a family business used Key Person Insurance to brace for impact.
- Life Insurance as Collateral
This is perhaps one of the better-known applications of Life Insurance. Banks and other financing institutions will often ask for collateral in the form of Life Insurance before lending an entrepreneur money.
Follow my LinkedIn newsletter for a soon-to-release case study of how one entrepreneur did it all wrong by failing to secure Life Insurance in time.
For Personal Finances & Legacy Planning
- Estate Equalization
High Net Worth Entrepreneurs come with large asset portfolios featuring liquid and non-liquid assets.
When it comes to passing down assets like a family home or a business, it is hard to ‘split’ these assets evenly. Life Insurance can help equalize an entrepreneur’s assets so that his or her heirs receive fair, equal shares.
Here’s a case study on how my client used Life Insurance to equalize his $230 million estate.
- Succession Planning & The Shariah Law
For a Muslim entrepreneur based in the UAE, the Shariah law stipulates how their wealth and estate get divided amongst their heirs.
This division might not always be in line with the way the entrepreneur wants to pass on his estate to his next of kin.
Carefully structured Life Insurance is one of the most effective ways to circumvent the Shariah law and pass your inheritance along the way you want to.
Once again, hit subscribe on my LinkedIn newsletter for a soon-to-release case study on how we structured one entrepreneur’s Life Insurance and Investments plans to increase the value of his estate by over 900%
- Liquidating Assets & Easing Wealth Transfer
Life Insurance is also an effective way to liquidate a ‘solid’ asset base. Entrepreneurs create generational wealth, often not all in the form of cash.
Property, the business, and other illiquid assets can be ‘balanced’ with a Life Insurance policy in an entrepreneur’s succession plan (see Estate Equalization above). Alternatively, Life Insurance can be used to create a more flexible way to transfer that asset and/or the wealth it generates.
Here’s how I would have used Life Insurance in this interesting case study of an entrepreneur who inherited a 184-acre coffee plantation and did not know what to do with it.
- Life Insurance as a Savings Vehicle and Safety Net
Last but not by far least, entrepreneurs use Life Insurance for its classic application: As a savings vehicle and a safety net, a lifeboat, for their family when they need it most.
A Universal or Term Life Insurance plan (reach out to me if you want to talk about how best to structure your Life Insurance), can provide immediate liquidity to surviving family members in the event of death or critical illness striking the insured individual.
I hope this article has helped you see that Life Insurance is much more than just a policy that pays out when the worst happens.
Used well, a Life Insurance policy can become one of the most powerful tools in your succession planning toolkit, especially for entrepreneurs.
Reach out to me if you’d like to talk about your Life Insurance plans and whether you’re using your policies in the most effective way possible.
P.S. I am currently also serving People in Sports – athletes, coaches, marathoners, and sportspeople who might not fall into the High Net Worth Entrepreneur category. All proceeds from business with People in Sports are forwarded to The Exodus Road – an organization fighting modern-day slavery and sex trafficking.