I find it amazing as I travel the country interacting with club owners and with most entrepreneurs, for that matter, there are two things that are universally shared. One: We all know that someday we will die. Two: We all act as though we will live forever. It truly is a contradiction in philosophy and very few people actually sit down and address this anomaly head on.
We can’t really blame ourselves for avoiding a morbid and negative subject such as DEATH. However, for the loved ones and business partners that we leave behind, not dealing with this issue can be devastating and grossly irresponsible. It is not only a fact that someday we all will die: but, it is absolutely certain, that other than suicide, we will not have the luxury of being able to determine when the final event will occur. Insurance company actuaries provide us with statistics that estimate our anticipated life expectancy. Isn’t that nice? They, however, along with the most of the bookmakers in Las Vegas, would have a hard time picking the “over/under” for a single individual like YOU. Guess what folks, you don’t have a clue as to when you will be hit by a drunken driver, be struck down with cancer, run into a tree while skiing the Colorado Rockies, or simply pass away in your sleep for no particular reason. We all have had close friends or relatives that have passed away at an early age. You’ll never know when it’s your time.
Now that we have established what we already know to be true about death, what are we going to do about it? As I see it, there are two very clear choices. One: Ignore it. If you die, you die. Who cares about past debts, about loved ones, about the friends and business partners you leave behind. You are DEAD… Let them fend for themselves. Two: Plan for it. The loss of your income will probably have a detrimental economic effect on the financial future for your spouse and children. You also want to protect the business partners who have shared the American dream of success with you but will inevitably be crippled by the untimely demise of your company’s “key” person….YOU. For those of you who have chosen option “One”, you may now leave this article and go back to posing in the mirror. For the rest of you well-intentioned souls, let us now boldly deal with the task at hand.
I hate to simplify and trivialize death, but in order to be totally objective and to help quantitatively map out an objective goal for the future, we have to put our emotions aside. The first order of business is to address the possible scenario that tomorrow you will die. Get over it. Now, knowing that death is upon you, what do you think will be going through your mind? Have you spoken to your mother and father lately? Have you told your spouse and children how much you REALLY loved them? Have you left behind a mountain of debt for your spouse to deal with and/or a business that will flounder without your presence? Tough questions and it is now too late to answer some of them. The way you have lived your life up to this moment will take care of the first two unattended items with your parents and family, but the financial future of your loved ones and business can not be addressed on your deathbed. It’s too late. Unless you have “planned” for this moment, your grieving family is likely to suffer tremendous financial loss and your business may become subject to a “fire sale”. What kind of legacy do you want to leave behind?
Let’s make the assumption that you want to deal with the financial loss that you will create when you enter into your negotiation conference with St. Peter. There are two levels of importance when deciding how you will care for the ones you are leaving behind.
Step 1.: Protect Your Family: Don’t worry about complicated formulas for trying to determine the amount of life insurance you need. Ten times your annual earnings is a recognized benchmark for determining the amount of life insurance you should have, but everyone’s needs are different. If you are on a budget, at least address the short-term needs (credit card debt, house and car payments and food for the next five years). $100,000 of life insurance will cost less than one Big Mac per week. You probably can afford elimination of long-term expenses (college tuition, car loans, and mortgage). Let’s just say that $500,000 would cover most of this debt. Did you know that a 35 year old male can purchase a half million dollars of life insurance for as little as $30 a month. If you are female, you can take an additional 10% off that rate. The premium can also be guaranteed not to increase for up to 20 years? ANYONE who can read this article should be able to afford $30 a month.
Step 2: Protect Your Business: This step is sometimes referred to as funding a “buy-sell” agreement. If you have a partner or partners in your health club, it only makes sense to protect each other from the loss of one of the stockholders or partners. You will be amazed how much the government says your business is worth when you or one of you partners passes away. An average health club today can be valued at nearly $1,000,000. If your partner owns half of the business and passes away, you now need to write a check for $500,000 to his estate or go into business with your partner’s spouse. Think about that for a minute. I don’t know about you, but even though I like my partner’s spouse, I am not crazy about having this person as my new “partner”. Without keyman insurance and a buy-sell agreement, I may not have a choice. Solution: Purchase “keyman” insurance on each partner for $500,000 and add an additional $500,000 to the coverage to protect the respective families. Even with $2,000,000 in total insurance benefits for the business and partnership families, the cost is surprisingly affordable.
Determining each individual’s specific long-term goals and life insurance planning strategies does not have to be a complicated process. You can go crazy trying to set up the perfect plan and more than likely it is going to change in five years anyway. Just look at where you were five years ago. The most important decision is to do something NOW. Calculate how much insurance you will need to protect your family and/or business TODAY and then set up your will or buy-sell agreement to outline how these funds are to be distributed. Why would you put this off any longer? How lucky do you feel? For more information, please consult with your local financial planner or visit www.keymaninsurance.com. Remember, you will not live forever.
Ken Reinig is President of Association Insurance Group and Managing Partner of the Women’s Workout Company in Lakewood, CO.