When people think about life insurance, the following thoughts often follow immediately, “Do I really need it”, “Was it really worth it?” “Why must I pay for something I will never see” or even “Is life insurance really that important and applicable to me or are there people dependent on me?”

The truth is that the intrinsic benefits within life cover make the value it offers far more important than just a mere policy. Life insurance is not merely placing a value on what you feel your life is worth but rather placing a value on how your life impacts the lifestyles of people around you that may be dependent on you.

If you think about it, the only two constants in life as we all know are death and taxes. Apart from the emotional aspects of the former, there can be many financial implications for those dependent (directly and indirectly) on you. The funny thing is that people seldomly make sufficient provisions for an outcome that is inevitable and guaranteed. People still need to think about the value of life cover and debate whether then need it or not when in essence, it is based on an event that is certain. This is as true in family situations as it is in corporate.

I came across this case study one day which I believe perfectly illustrates the point I am trying to make.

There was a business owner who was around 60 years old. He had built his company from scratch with his partner over the last 35 years and was extremely successful. They both had a 50% share in the company and had over 100 employees working for them. The company was mainly focused on construction projects throughout Europe and Africa.

He was married but unfortunately had no children and his wife was a nurse.

Although being exceptionally successful, he and his business partner did not have adequate cover in place to protect the continuity of their company should anything happen to either one of them. This had been discussed several times with the partners however they both agreed that the company was successful enough and it was not a necessity.

Unfortunately, due to unforeseen circumstances, one of the partners passed away. In his will, he had left his entire estate, including his business shareholding, to his wife. This meant the wife inherited 50% of the business of which she had no experience nor know how to run.

As there was no buy and sell agreement in place nor shareholder protection policy, the remaining partner did not have enough capital to buy out her shares. This meant that she, with no experience in running a construction company, was now in control of half the company and was equally responsible for the management of the company.

This was a recipe for disaster, especially as the company was multi-national. Unfortunately, the company did not last longer than 2 years due to the mismanagement of the business and over 100 employees subsequently lost their jobs.

Should there had been sufficient life cover in place on the deceased partner, payable to the remaining partner, to use for the benefit of purchasing the deceased partners share of the business from his spouse, the company would have survived as he would then own 100% of the company. As he has 35 years’ experience in construction, it would have more than likely led to a successful sustainable business as opposed to having caused over 100 employees to lose their jobs and the business to liquidate.

In cases like this, which are more common than not, it can only be stressed that life insurance should be viewed as more of an obligation and necessity than a “grudge purchase”.

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Blog published by Mike Coady.

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