Major Principles of Insurance #2

As we deal with entrepreneurs who collateralize assets as they grow their businesses and create estate exposures in the event of premature death, disability or sickness, it is reassuring to know that the proceeds of life insurance are creditor proof.

Our client Richard is a wonderful young man. Charming, enthusiastic, intelligent, athletic and industrious, he was the fellow who always quietly left the party during university with the nicest and brightest woman (in fact he married her).

Together they created a very successful manufacturing business as well as two beautiful children. Plant expansion, equipment upgrades, employee growth, currency devaluation, customer expectations and regulatory compliance were major demands coming at a cost to the business, which necessitated regular utilization of a corporate line of credit.

Preparing for meetings with their banker was always stressful. While their bank’s account executive was personable and wanting to be helpful, nevertheless if the agreed ratios and formulas for any of the above expense lines were out of sync with revenues, the bank had no choice but to seek more collateral or reduce the existing line of credit.

The knowledge however that in the event of either Richard’s premature death or his wife Susan’s, that for pennies on the dollar they had put in place life insurance that would have paid off the line of credit; replaced a good percentage of what they had together hoped would eventually be a good valuation of their business over time; retired the mortgage on their home and provided sufficient capital to raise and educate their children was particularly comforting.

In addition, as outlined in the March 2017 Forum Magazine Openers section article, written by Susan Yellan, if a spouse, child, grandchild or parent is a named beneficiary the insurance proceeds are exempt from seizure by any creditor that Richard or Susan may have had either corporately or personally.

 

I can feel my Grandfather’s smile.​