The Importance of Key Person Insurance Coverage

Wednesday, October 28 at 10:15 AM
Category: Business Banking

Key person insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business – the ones whose absence would be detrimental to the company. You definitely need to consider key person insurance on those people.

Here's how key person insurance works: A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff. The reason this coverage is important is because the death of a key person in a small company can cause the immediate death of that company. The purpose of key person insurance is to help the company survive the blow of losing the person who makes the business work.

The company can use the insurance proceeds for expenses until it can find a replacement person, or, if necessary, pay off debts, distribute money to investors, pay severance to employees and close the business down in an orderly manner. In a tragic situation, key person insurance gives the company some options other than immediate bankruptcy.

If the company is a sole proprietorship and employs just you and no other employees or has no other people who depend on it, then key person insurance isn't as necessary. Don’t confuse key person insurance with personal life insurance. If you have a spouse and/or children who depend on your income, then you should have personal life insurance for that purpose.

How do you determine who needs this insurance? Look at your business and think about who is irreplaceable in the short term. In many small businesses, it's the owner who holds the company together – he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much stops.

How much key person insurance do you need? That depends on your business, but in general, you should get as much as you can afford. Shop around and get rates from several different agents; most life insurance agents will sell you a key person policy. Be sure to ask for term insurance – many agents will push whole or variable life, which have much higher premiums and commissions but are unnecessary for a key man policy. Ask for quotes on $100,000, $250,000, $500,000, $750,000 and $1 million, and compare the costs of each. Then think of how much money your business would need to survive until it could replace the key person, come up to speed and get the business back on its feet. Buy a policy that fits into your budget and will address your short-term cash needs in case of tragedy.

Source: Entrepreneur Magazine*

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Tags: Arvest Biz, Business Banking, Insurance
 

3 Questions to Ask Yourself Before You Retire

Thursday, October 08 at 10:10 AM
Category: Personal Finance

As you near the end of the final lap of your working years, and begin scanning the retirement horizon, you are likely to be seeking the information that you need to ensure a secure financial future. Here, we touch on three of the most important questions that you should be asking yourself as you transition to retirement.

1. Do I understand all of my Social Security benefits options?
When do you want to begin receiving Social Security benefits? Apply at least three months ahead of the time that you wish to begin. You can receive a reduced benefit once you reach age 62. The full benefit shown on the Social Security estimate statement that you receive each year can be yours when you reach “normal retirement age” (no longer automatically age 65, but dependent upon your date of birth). Or do you want to wait until later, to increase the amount of your benefit? You may want to run the numbers. If you plan a “working retirement,” find out if your benefits will be reduced, and by how much. You can make estimates of what benefits you can receive by using the Social Security Benefits Calculator.*

Benefits aren’t automatic. You can apply for benefits by: filling out an application online at socialsecurity.gov; calling (800) 772-1213; or visiting your local Social Security office. 
 
2. Do I have all my health insurance coverage in place?
There are three avenues to explore here:
 
1) Medicare. If you’re already receiving Social Security benefits at age 65, your Medicare (Part A) starts automatically. If you’re not receiving Social Security, you should sign up for Medicare close to your 65th birthday, even if you have not reached your full retirement age, or you aren’t yet ready to retire. Part A is called hospital insurance and covers most hospital stay costs, as well as some follow-up costs. Part B, for which you must enroll, pays some doctor and outpatient medical care costs. The rules for prescription drug coverage are complicated, so you will want to familiarize yourself with them before you need to make any decisions. Plan providers, the AARP and the Medicare website* can offer guidance.
 
2) Medigap (and other) Policies. About two-thirds of all Medicare recipients aged 65 or over buy this kind of supplemental private health insurance, designed to deal with some of the holes in Medicare coverage. Before buying Medigap, HMO or other managed care insurance, you’ll need to do a thorough review of the kinds of policies available and their costs.
 
3) Retiree Health Insurance. Find out if you can obtain retiree health insurance from your or your spouse’s company or union. You may find that the cost is less than that for a Medigap policy and provides more benefits. Make sure that you read the policy’s fine print. Especially important: Will premiums rise with inflation? If you are a veteran, find out if you are entitled to medical or prescription drug coverage from the government. 
 
3. Do I know how I want to manage my company retirement plan payout? 
Your 401(k) or other qualified retirement plan may offer several kinds of distribution choices. One option may be to receive your benefits as periodic payments (an annuity). For pension plans there are choices within choices: Your payments might be fixed or variable, paid out over your lifetime or that of you and your spouse. 

Or you may be entitled to receive a lump sum payout of your account balance. In that case you will need to make a decision as to whether you should: (1) take the money in hand, pay tax on it and invest what’s left; or (2) arrange to roll over all or part of your payout into an IRA, avoiding all tax as long as the money remains there. At age 70 1/2 you are required to begin making withdrawals. 

If you are planning an IRA rollover, tread carefully, for there may be tax traps. For example, arrange for a direct rollover of your account from the company plan to a Rollover IRA. If you don’t, your employer is required by law to withhold 20 percent for income taxes. 

An Arvest Asset Management Client Advisor can assist you in meeting your financial goals for the future. Find a Client Advisor near you.
 
© 2015 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2015, are not reflected in this article.
Links marked with * go to a third-party site not operated or endorsed by Arvest.
 
Tags: Financial Education, Insurance, Retirement
 

Business Insurance

Wednesday, October 15 at 07:35 AM
Category: Business Banking

Every business needs to consider several types of insurance depending on the nature of the business.  You may want to consider working with an insurance professional to make sure you have the right types of policies to provide the coverage you need.

Health insurance
Many businesses provide health insurance as part of their overall employee benefit program. The cost of health insurance continues to rise and you may want to consider having employees pay some part of the cost. If you have a small business with only a few employees, you may want to consider a group plan to cover employees and your family. By being part of a group and having employees pay part of the costs, you may find it is not much more expensive than getting personal health coverage. You may also be able to improve your coverage in this way.

Property insurance
Just about every business should have insurance to cover the loss or damage to property, inventory or equipment. Premiums vary according to the type of property, coverage limits and what you insure against.  If you have electronic equipment (such as computers), be sure to investigate how your policy works in case of damage to the files (power outages or surges) as well as damage to actual equipment. Backing up files and storing them in a secure, off-premises location is very advisable as well.

Business interruption insurance
You may want to investigate insurance that would provide benefits if you were no longer able to conduct business in your usual fashion. These policies vary greatly in cost depending on what is covered. However, you may want to consider what would happen if you could not occupy your location in case of disaster.

Liability insurance
This insurance can cover damages you pay as a result of your actions or negligence, or if someone is injured while at your business. Everyone has heard of the large damage awards being made when a customer slips and falls because the business did not melt the ice in front of the door. Be sure to discuss this type of coverage with a qualified insurance professional to make sure you are adequately covered.  The trend toward large jury awards appears to continue.

Workers’ compensation insurance
This insurance provides coverage for medical and related costs for accidental injuries suffered by employees at your workplace. The amount of coverage required varies by state.

Auto insurance
If you use an auto, even if it is your personal one, you may be required to have a commercial auto insurance policy. If you are a sole proprietor and use your car, be sure to discuss this with your auto insurance provider.

Umbrella insurance
The usual cost of umbrella insurance is low. This coverage fills in the gaps of your other policies or provides additional coverage once the original policy limits are exceeded. This can be extremely valuable in case of large losses. Many companies offer these policies and you may find one of your professional organizations has a relationship with an issuer that will keep your cost low.

Summary
Most businesses need more than one type of insurance coverage. Spending some time considering what is needed and how the policies can be structured for your business is probably a good use of time and effort. Managing and growing a business is hard enough without having to worry about not being covered if unforeseen events occur.

Tags: Arvest Biz, Business Banking, Insurance
 

Key Person Life Insurance

Wednesday, October 01 at 06:15 AM
Category: Business Banking

Many small businesses are highly dependent on the presence of a key employee or small group of employees for the ongoing operation of the business. It may be an owner, partner or some other important person. Protecting the business against the untimely death of that person with some type of life insurance policy can be wise. In fact, some lenders may require such an arrangement.

Ask yourself these questions. Your answers should help determine if you may need this type of protection.

  • What would happen if one of your key employees were to die?
  • Would your business cease to operate?
  • How would your operations change?
  • Is there another person to take the key employee’s place?
  • How much would it cost to hire another person to fill the void?

If answering those questions raises any red flags, you may want to consider buying some life insurance on that key employee. Having the funds available to help run the company until a replacement is found or another resolution is determined would provide you with valuable piece of mind. The best policy could be relatively inexpensive term life insurance. The business would be the policy owner, beneficiary and would pay the premiums. If the person dies, the company receives the death benefits and can then decide on a future course of action.

Using Life Insurance as Part of a Buy/Sell Agreement

Buy/sell agreements control what happens to an ownership interest in the event of the death or disability of one of the major owners of the business. The agreements can be structured so upon the death of an owner, the business buys back his interest or the remaining owner(s) buys the interest. In most cases, buy/sell agreements include some valuation guidelines for the business.

Many companies use life insurance as a means to fund these types of agreements. For instance, if the business is valued at $3 million and one owner has a one third stake in the business, the business may buy a $1 million term life policy. The proceeds could be used to buy the deceased owner's shares on his death. Another option would be for each owner to buy policies on the lives of the other owners. There are some special tax rules that apply to corporate ownership of life insurance policies. If you are considering this type of arrangement, be sure to seek qualified legal advice.

As you hope for the best and plan for the worst, you can provide yourself peace of mind when managing your business. 

The views of this article are for general information use only. Please contact and speak with a subject expert when specific advice is needed. Find articles like this and much more in the online Arvest Biz Center.

Tags: Arvest Biz, Business Banking, Insurance
 

Arvest Benton County Offers Auto Warranty Seminar

Tuesday, July 05 at 09:14 AM
Category: Arvest Community News

Have you heard about non-dealer extended auto warranties available from the bank and had questions about how they work or what the benefits are?  An upcoming free seminar covering extended warranties can connect you with a banker who can answer all of your questions and get an immediate quote on covering your vehicle.

 Arvest of Bentonville, AR will host an informative seminar in July to provide motorists with information about the peace of mind an auto warranty offers. After the seminar free quotes will be provided to those that bring their vehicle information. All you need is the Year, Make, Model and Mileage and we can provide with you with a variety of options based on your particular needs.

Please join us for this informative seminar:

Arvest on the Square, Bentonville
Friday, July 15th
10:00 a.m. to 11:00 a.m.

Please RSVP by Tuesday, July 12th via email at aspicer@arvest.com or phone Angie Spicer at (479) 271-1454. Seating is limited.

Tags: Arkansas, Arvest Benton County, Consumer Protection, Insurance

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