Are we truly facing the Great Recession?  Whatever the answer, countless charities that rely on donor support to fulfill their missions within the community are suffering from the slowdown in charitable giving.  This is a natural by-product of the current economic times.  According to Philanthropy.com, 52% of charitable organizations saw a drop in donations in the second quarter of 2009.  In addition to the present economic woes, it is also a fact that a history of philanthropic giving can take its toll over time, causing “donor fatigue” in donors of frequent and major gifts.  As a result, more creative strategies are becoming attractive to donors; for instance, many charitably-inclined individuals are donating life insurance policies to non-profit organizations. Alternatively, an individual may consent to charity-originated life insurance.

Philanthropist Dr. Sanford Ziff, Founder of Sunglass Hut International Inc, has long been an advocate of this form of charitable giving. A prominent donor in Miami, having gifted to such institutions as the Sanford & Delores Ziff Opera House, Dr. Ziff has strong beliefs about supporting the charitable community. According to Dr. Ziff, given these difficult times, “There is no better time than the present to consider life insurance as a philanthropic donation.”

Dr. Ziff further states, “So many charities should have considered life insurance benefit donations years ago; now look at the current situation, where charities have an even tougher time than many businesses. Charitable organizations can – and should – consider safe and valuable fundraising alternatives.”

Donating a life insurance benefit to a favorite charity is a heartwarming – and very easy – way to give to your favorite cause.  In fact, many donors are considering a newer means of leveraging their philanthropic donations through a strategy called “life insurance premium financing”, which allows them to make substantial donations, making use of life insurance as a monetized gift to a charity.  Philanthropists can also avoid paying exorbitant life insurance premiums and utilize excess liquidity for donations today.

Insurable interest (realizing a financial loss when the insured passes) typically must exist for a charity to enjoy the benefit from life insurance.  Insurable interest between a charity and a donor can exist in the following examples:

1. Donors of major gifts,
2. Significant “founders” or frequent contributors over a period of time,
3. Key leadership within a foundation or nonprofit,
4. Board members that bring valuable consideration to an organization, and
5. Key fundraisers that bring in major gifts and significant donations in aggregate.

Below, is an example of how Mrs. Smith utilizes her life insurance policy to benefit her charity, business and family:
Mrs. Smith is a 79-year-old philanthropist, business owner, and matriarch with an insurable capacity of $20 million, which is comprised of her philanthropic involvement, business interests and household net worth.  To utilize her excess insurable capacity, she seeks a loan to pay the premiums on a new Universal Life insurance policy with a face value of up to $20 million, naming her favorite charity, her business and her family as beneficiaries.  This loan for the life insurance premiums may be repaid through the policy itself, giving her the option not to make payments.  If Mrs. Smith donates a portion of her insurability to the charity in this way, she may receive recognition for a Planned Gift at the origination of the transaction, even though the donation may not be realized until she passes away.  In certain circumstances, a living benefit or “life settlement” may result in the charity receiving a donation by selling a policy for a lump sum to a financial institution during the insured’s lifetime.  It is important to note that many insurance carriers do not condone putting a policy in force or originating a policy if the sole intent is to sell the policy on the secondary market; however, a policy owner’s circumstances may change and it is within their legal rights to sell a policy.

Simply put, the charity could be the recipient of the life insurance benefit.  Therefore, in the case of financing for life insurance premiums, the charity would receive a portion of the life insurance proceeds after the bank’s loan is repaid.  The life insurance benefit ultimately replaces the future financial loss to the charity, which represents insurable interest between the charity and insured person. It is important that qualifying individuals and organizations carefully review risks versus rewards, as well as work with a specialized premium financing firm that has a respectable track record, solid references and a high level of experience and compliance within the industry.

If you have further questions about the feasibility of life insurance benefit donations, Jon Kidd or Keith Owen, principals of Banyan Life Financial, may be reached via phone at 305-695-8052 or toll-free at 800-828-ESTATE (800-828-3782).  Their office is located right on the edge of Biscayne Bay at 1800 Sunset Harbour Drive, Marina Suite 3, Miami Beach, FL 33139.  Emails can be sent to Jon.Kidd@BanyanLife.com and Keith.Owen@BanyanLife.com.  You are also welcome to view their website.

Key person insurance is an important component for small, medium-size and large businesses.  Key person insurance may be particularly important for medical practices, CPA firms, law practices and other professional corporations.

Businesses often depend on the expertise and talent of a small number of individuals for their success, as such, the death or disability of one of these key employees or executives may result in substantial economic damage or even the demise of the firm.  To avoid a negative financial impact, prudent companies acquire life insurance on key persons.   Due to the current economic landscape, cash-flow sensitive businesses are constantly looking for alternate methods of funding life insurance premiums.  Life insurance premium financing may be a way to leverage the insurable needs of corporations without dramatically impacting the businesses’ cashflow.

Business Coaches Lionel Baugh and Pilar Sanchez define a business as “a commercial profitable enterprise that works without you.”  Baugh remarks, “Every business owner should have this definition in mind, and work harder on the business than in the business, not only to achieve sustainable growth, but to have a real organization that can work without him or her. In order to achieve that goal, the organization needs to have a solid foundation with appropriate planning in the way of key person life insurance”.  Sanchez adds, “Business owners and corporations buy key person insurance to protect their company for potential issues that may arise from the death or disability of a key person.  At Action COACH Business Coaching, we advise our executive clients to avoid a failing plan by making the right investments into their short and long-term goals with resources allocated to a sustainable successful business.”  As an executive, business owner, or board member, you have a responsibility to your company to minimize business risk.  Key employee insurance is a cost effective way to mitigate business risks resulting from the disability or death of a critical contributor to your organization.

Once a company is established, business continuation or business succession planning becomes a critical component to continued growth.  Business succession planning addresses all potential contingencies that may affect a business or business owner including retirement, sale of a business to a related or third party, disability or death, all of which can be planned for with disability and life insurance coverage.  Many companies’ succession plan include a key employee to take over at some point in the future; some succession plans bring a new executive from the market but most transitions resulting in lowest turnover are from promotions within an organization.  In that regard, the following business succession facts and statistics are illustrative:

• On average, 45% of the business owner’s net worth is tied up in the business. (LIMRA International, Small Business Owners 2005 Report)
• Only 26% of small business owners have some type of succession plan in place. (LIMRA International, Small Business Owners 2005 Report)
• Fact: Many business owners are depending on the value of their business to fund their retirement.
• Less than 30% of family owned businesses survive to the 2nd generation and less than 12% to the 3rd generation with only a 3% survival rate to the 4th generation. (Joseph Astrachan, Ph.D., editor, Family Business Review)

In conclusion, businesses desiring to minimize risk and prevent potentially devastating effects caused by the death or disability of a top employee or executive should own key man disability and life insurance.  Understandably, there is no better time to learn about the option of financing such policies.
Lionel & Pilar may be reached at 305-456-8561 or 786-205-40-01.  You may also wish to visit their website at www.actioncoach.com/lionelbaugh or to email them directly at pilarsanchez@actioncoach.com.

Jon Kidd may be reached via phone at 305-695-8052×106 or toll-free at 800-828-ESTATE (3782).  The office of Banyan Life Financial is located at 1800 Sunset Harbour Drive, Marina Suite 3, Miami Beach, FL 33139.  You may also wish to visit their website at www.BanyanLife.com or to email Jon directly at Jon.Kidd@BanyanLife.com.

Imagine you were informed that, thanks to a close relative, you had inherited millions of dollars worth of Coca Cola stock certificates that had been lost in the attic for decades.  Since this “negotiable instrument” belongs to you, would you climb up into the attic to get it and immediately enquire as to its value?

Forgotten or unrealized assets are surprisingly more common than people think.  Many families have not liquidated their bonds or stock certificates due to a lack of communication from generation to generation.  Life insurance premium financing creates a very similar scenario by tapping into an unrealized asset we call “insurable net worth”.  A life insurance policy is an asset just like a house or car.  You may qualify for a loan that pays the annual premiums, just like a mortgage or car loan, except the interest and payments may be accrued into the loan.  Interestingly, the policy value itself typically repays the loan for those of age 70 and over.

5 Common Questions

1. What if I already have an estate plan in place?
Life insurance can supplement any existing estate plan.  Most people are unaware of how life insurance premium financing benefits estate or charitable planning.  It is recommended that individuals consult with their tax attorneys; gift taxes might be avoided with premium financing versus paying premiums outright.

2. What if I already have life insurance?
Very rarely is an individual insured up to their net worth or full capacity.  Many people do not realize the need for that much insurance.  If the hidden asset (one’s insurability) exists, why not benefit from it?  Further, many consumers are unaware that they have the option of exploring a sale of this policy in their lifetime to enjoy a “living benefit”.  It is important to note that most insurance carriers do not condone originating new life insurance policies for the sole purpose of selling it for a financial gain as an investment.

Another common purpose of life insurance premium financing is for a corporate key person or to fund a “buy-sell agreement”.  Today, people often consider a 1035 exchange and/or to sell a policy to ultimately enjoy lower premiums due to the new mortality tables; the 2008 Valuation Basic Tables (VBT) adjustment has resulted in lower premiums due to longer life expectancies.

3. I have heard of premium financing before, how do I choose the most specialized firm?
Individuals should feel comfortable dealing with a specialized firm that focuses solely on premium financing; seek a practice that works with top CPAs, estate and tax attorneys among agents and advisors throughout the country referring clients to them.  Premium loans should always be fully disclosed, transparent, safe and compliant and therefore be accepted by regulators, insurance companies and all other parties involved.  A specialized firm will ensure that an individual is in a life insurance transaction that matches their needs.  Choosing an experienced firm is important because insurance companies and regulators frown upon certain transactions that take place within the industry.

4. What if you have bad health?
You may be pleasantly surprised that you are likely to be insurable provided you do not have a terminal illness.  An insured could be classified as a standard health risk, even if.  There are advantages to be gained by working with a firm that has developed very strong relationships with underwriters and insurance companies over the years and as a result, can leverage this to bring a client a better insurance rating.

5. This sounds too good to be true, why is everybody not doing this?
More than likely, they have not yet been made aware of it.  It is also human nature to ignore death and unfortunately, this often results in harsh financial consequences.  Each person has a limit to the amount of life insurance they may qualify for, usually based on their estimated estate tax liability, business interest or charitable involvement; they may, or may not, qualify for life insurance premium financing at a later date.  This is not “something for nothing” or “free insurance”, as the premiums are paid for and an insured person is expending their insurable capacity.  Not everybody qualifies and clients should understand the risks and rewards relative to this or any product that proposes to enhance the family’s net worth.

Jon Kidd or Keith Owen may be reached via phone at 305-695-8052 or toll-free at 800-828-ESTATE (3782).  You may also wish to visit www.BanyanLife.com or simply stop by for a tea or coffee at their office on the edge of the bay at 1800 Sunset Harbour Drive, Marina Suite 3, Miami Beach, FL 33139.

Looking for a way to balance your financial situation in the current economic environment?  “Consider life insurance premium financing,” says Jon Kidd, CEO of Banyan Life Financial.

The ideal client for this option, he says, is 70-plus years old, preferably with a minimum net worth of $1 million.

“Simply put, life insurance premium financing marries a life insurance policy to a loan. Life insurance can be purchased inside an Irrevocable Life Insurance Trust and paid for by a premium loan.  The insured clients are merely leveraging a hidden asset we call insurable capacity,”  Kidd explains.

“Despite the current credit crisis in the global markets, institutional lenders are increasingly deploying capital for life insurance financing as it is considered to be a long-term stable asset-class.”

Kidd comments, “Institutional banks and insurance carriers let clients use the policy as primary collateral as they understand that it is an asset with more value than the loan itself.  Loans against these policies yield competitive rates and terms. The interest can be accrued into the loan whereby you may even have the option not to make payments.”

The policies can significantly minimize inheritance tax obligations, making them ideal for older persons looking to pass on their assets.

“In the present financial climate,” Kidd explains, “a lot of people have lost between 20%-30% of their net worth. There may be no better way to balance out the situation than through premium financing.  Life insurance is known by many to be the number one means of augmenting wealth transfer from generation to generation.”

It is important for clients to understand that there is full transparency and approval for these products at the insurance carrier and regulatory levels.  Most CPA’s or attorneys who understand and review this transaction for a client will sign off on it.

Kidd remarks, “In cases where clients no longer need or want the life insurance, they can consider selling the policy, as it is just like any other personal asset. It is also a great way to enhance planned giving by donating your insurability to a charity or alma mater.”

For more information call Banyan Life Financial via (305) 695-8052, toll-free via 800-828-ESTATE (3782) or visit online at www.BanyanLife.com.