Identifying the Exposure and Managing the Risk

Case Study No. 3

The life insurance strategy for the Jones and the Smiths are different but equal in value. The Jones invested in life insurance personally while the Smiths did so in their company. What is their exposure?

The Jones Family

Planning

Mr. Jones invested in a whole life policy. The cash surrender value of the policy is $750,000 and the death benefit is $2.5M.

Mr. Jones is the life insured and Mrs. Jones is the beneficiary. Mr. Jones is no longer insurable, he had cancer.

Exposure

Mr. Jones’ life insurance policy is protected from his unsecured creditors because his wife is the named beneficiary. Potential exposure to Mrs. Jones’ unsecured creditors when death benefit is paid to Mrs. Jones.

The Smith Family

Planning

Mr. Smith had his company purchase whole life insurance on his life 30 years ago, naming the company the beneficiary.

The cash surrender value of the policy is $750,000 and the death benefit is $2.5M.

Mr. Jones is no longer insurable, he has heart disease.

Exposure

Both cash surrender value ($750,000) and death benefit ($2.5 million) could be attached by the company’s unsecured creditors.

Potential exposure as well from the unsecured creditors of the shareholders when the the death benefit is paid to the shareholders.

Option for The Smith Family

The Life Insurance Protector™ designed to protect corporate owned life insurance in a tax neutral manner. Gives the Smiths similar protection to that of the Jones.