How Term Insurance Can Prevent a Crisis
My entrepreneurial parents started a homemade ice cream parlor when I was in preschool. They learned the trade from family and found a convenient location across the street from a hospital. Despite overhearing customers say, “they’ll never make it,” they survived their first Colorado winter in the ice cream business, expanded to soup and sandwiches, and began negotiating a purchase agreement for their building. That’s when the unexpected happened. The building owner was tragically killed in a car accident. Thankfully, the property went to his retired parents who were willing to seller-finance and negotiated a fair price. The sudden circumstantial change could have ended several ways and I would like to propose a few alternate endings, beginning with the worst-case scenario and exploring how he could have better protected his assets and family.
Scenario 1: The property owner passes away with an outstanding mortgage. In this situation, the family would have been responsible for managing the assets and coming up with the money to pay off the bank. It was the 1980s, so interest rates hovered around 18%! The family may have wanted to sell the property as fast as possible, pay off the debts, and have some extra cash. Which means they would have needed to sell to the highest bidder—which would not have been young entrepreneurs with two young children who could not get a bank loan to finance a dream. My parents would have either closed up shop or searched for a less favorable location.
Scenario 2: What if the property owner had an inexpensive term insurance policy? His family would have received a significant sum to buy them time and options. Outstanding debts would have been paid off, giving the family other options to decide what to do with the building. Thankfully in this scenario, it may also have resulted in the same outcome for my parents—a seller-financed purchase agreement.
Scenario 3: But what if, when my parents started the business, they had arranged a buy-sell agreement with the owner of the property? Meaning they owned life insurance policy on the owner, and the owner owned policies on them. In this situation, my parents would have received a death benefit payment, giving them the option to buy the property out-right, the bereaved family would have received immediate payment for the building.
If you have any properties, projects, debts or assets that are not protected by at least an inexpensive term insurance policy, let’s talk! It is too easy to focus on the task in front of us and simply hope for the best regarding our future. Taking a few moments to let us explore your options and help strategize a plan could mean a best-case scenario for you or your loved ones.
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