The wonderful CEO at the LIA Pat O Sullivan always enjoys it when I write about the “magic of the life insurance policy” and how it is the only financial instrument in the world that creates new money exactly when it is needed the most….. on the death or serious illness of the person whose life is insured under the contract.
This work of arranging life insurance cover to protect our customers, their families and their businesses is what I have been doing at City Life for the last 46 years. It’s part of what I get paid to do.
Today I am going to tell you the story of just one policy that I arranged 19 years ago on the life of a very good friend.
My client/friend is a business owner and because at that time the success or otherwise of his business depended totally and solely on him I suggested that he arrange a key man policy to include life and accelerated serious illness cover. The premiums would be paid each month by his company and the policy would be owned by the company. I arranged it in such a way that the cash value of the plan would be more or less equal to the total premiums paid by the time he got to age 65.
The cover was substantial and so was the monthly cost but my client decided to go ahead with the plan as he could see the benefits to his company if he died or had a serious illness. Also he understood the potential benefit to himself if he survived and got to 65 as the cash value would be available to boost his pension fund providing of course that nothing had happened to him in the meantime. The fact that his company was paying for the policy and not him personally out of his after tax income, made the whole thing possible.
And so for the next 10 years at each annual review we discussed the growing cash value and always we regarded this cash fund as money that would be available for his benefit at 65. We also discussed however, that if his company had a crisis along the way and needed some extra cash at any time, it had immediate access to this money. This access to immediate cash subsequently became very important.
As we all know we had this horrible economic crash in 2008 in Ireland, when property values tanked and the Irish banking system failed. As a result nearly all businesses in Ireland suffered dreadfully as business slowed and access to bank finance, more or less disappeared.
And so it was with my client. His business suffered a sharp down turn and suddenly his access to money was denied by the Irish banks and as a result his business needed cash.
We were having our annual review around this time and discussed the cash in the key person plan and also the cash values on other savings plans that he owned in his own and his company’s name because now he had an urgent need for cash. The wonderful thing about having cash in a personal savings or a key man plan is that access is immediate and you don’t need anybody’s permission to withdraw it. As a result we drew a substantial amount of money from his company key man policy and other savings policies he owned.
The access to those funds was absolutely vital and helped his company survive the crisis and prosper again when Ireland returned to some normality.
Soon afterwards as there was no cash value left in the policy and he now had his children running his business we made a decision to transfer ownership of the key man policy from the company to himself and so for the last few years he has continued to pay the monthly premiums himself to keep the serious illness cover aspect in place.
Recently he made a successful serious illness claim. As a result a substantial cheque has just been paid to him. Has that policy been important to him personally and to his business? You bet it has.
The importance and the value of the work we do in protecting our clients, their families and their businesses is work that should never be underestimated. We often provide money at the time it is most urgently needed.
Yes the magic of the life insurance policy. An application form followed by underwriting and then the policy document…..the promise to pay ……the new money Pat!
Ted Dwyer Family Business