22 Mar 2012
- Written by Charles Sims Jr.
For most of us, the odds of dying young are fairly remote. The probability that people between the ages of 30 and 60 will live to age 65 ranges from 85 percent to 95 percent, depending on gender and age.
But did you know that the odds of one out of any two people dying before 65 are significantly higher?
Consider a two-owner business in which both owners are 45 years old. If both are men, there’s a 24 percent chance that one won’t make it to 65; if both owners are female, there’s a nearly 20 percent chance.
It’s likely that your company relies on a few key players whose disability or premature death could endanger the company’s future. In fact, the risk is real enough that you may want to consider insurance to help protect against such an outcome.
Keys to the business
Key-person life insurance can help offset the financial consequences resulting from the death of someone upon whom the company relies for success. If the insured dies, the policy pays a death benefit, up to the policy limit, that could help the company bridge any financial gaps created by the loss while the survivors decide how to proceed.
Key-person disability income insurance is also important because the chances of suffering a disability are much higher than the risk of early death. At age 50, a long-term disability is 2.3 times more likely than death for men and 3.8 times more likely for women. There is a 59 percent probability that one of any two 50 year olds will experience a long-term disability before age 65; the odds rise to about 74 percent for one of any three people of that age. The proceeds from a key-person disability policy could help pay the disabled executive’s salary in the event that the business needs to hire a temporary replacement, or to help defray other costs associated with lost productivity.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.
Equipment can always be repaired or replaced, but the same cannot be said of people. Protecting your company against the unexpected absence of key players could help keep the doors open if tragedy should strike.
(Charles Sims Jr., CFP®, CERTIFIED FINANCIAL PLANNER™, is President/ CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www. SimsFinancialGroup.com. The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.)