So far we’ve discussed many different buy-out options in your Business Succession plan. They revolve around three basic solutions; Term, Whole Life and the Blend. Let’s do a quick summary review.
Term Life:
This is a pure protection plan with no cash value accumulation. It is protection for a definite time period and when the term expires, so does the Life Insurance.
Whole Life:
Here you have permanent protection in the form of cash value build-up from reinvestment of dividends. The dividends pay a fixed rate of return declared annually.
The Blend:
This is a combination of both Term and Whole Life. A segment of your premium covers the Death Benefit component. The remaining amount goes into a cash account to help the policy owner accumulate a cash fund.
Universal Life:
This is also called The Blend. There are essentially two strands, Variable and Indexed. The variable account invests in a wide variety of sub-accounts consisting of stock and income funds. The Indexed portfolio invests in an Index of the stock market, most commonly the S & P 500. The Indexed Policy also allows you to participate in any gains in the stock index while guaranteeing you do not lose any monies during a down market.
For the time being, this concludes our study of the various buy-outs using Life Insurance. In reports to come, we will focus on other strategies to cover your Business Succession buy-out. One very important area is what to do in the event of a long term disability.