Peter and Susan, both 35-year-old business partners, faced a critical realization about their successful venture’s future. When confronted with the possibility of one partner’s premature death, they recognized the potential devastation to their business, employees, and the deceased partner’s heirs. To address this scenario, they explored several options in securing the future:
- Borrowing money
- Using cash reserves
- Selling part of the business
- Involving heirs in business operations
- Purchasing life insurance policies
After careful consideration, Peter and Susan opted for life insurance policies, specifically choosing Indexed Universal Life (IUL) policies. Here are the key details of their chosen policies:
Policy Specifics
- Type: Indexed Universal Life (IUL)
- Initial Death Benefit: $1,000,000 each (50% of current $2,000,000 business valuation)
- Premium: $2,500/month for 30 years
- Cash Value: Equals or exceeds premiums paid after approximately 8 years
Death Benefit Growth
The death benefit increases over time to account for business growth:
| Years | Death Benefit |
| Start | $1,000,000 |
| 5 | $1,142,000 |
| 10 | $1,343,000 |
| 15 | $2,098,000 |
| 20 | $2,736,000 |
| 25 | $2,736,000 |
| 30 | $3,649,000 |
Long-term Benefits
- Retirement Option: At age 65, each partner can convert the policy to tax-free income of approximately $20,500/month for 25 years
- Total Premiums Paid: $900,000 ($2,500 x 12 x 30)
- Total Potential Tax-Free Income: $6,150,000 ($20,500 x 12 x 25)
Premature Death Scenario
If one partner dies prematurely, the death benefit is paid to the surviving partner. A properly prepared Buy/Sell agreement (Exit Strategy Blueprint) ensures the remaining partner can pay off the deceased partner’s heirs’ claims while retaining 100% ownership of the business.
This case study demonstrates the importance of planning for unexpected events in business partnerships. By choosing IUL policies, Peter and Susan have not only protected their business but also secured potential retirement benefits, showcasing the dual advantage of crisis protection and long-term financial planning.