Richard Canfield explains how key-person insurance protects businesses when critical employees die, and how a participating whole-life policy creates a capital reservoir for expansions, hires, and bonuses. A well-structured policy can fund buy-sell agreements so the business survives and the family gets paid.
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This is one of those silent risks. It sits in the background of every business. Everything feels fine until one day it isn't. It isn't like, you know, the fire— there was no fire and then all of a sudden there was a fire. The business is scrambling and it's not the best time to go looking for liquidity, right? Banks don't want to lend you money when you need it to make the business survive because the key person is gone and now they don't want to give it to you. So when everyone needs money, it's always the hardest to get at unless you have proper things in place. Like good insurance. So here's the key reality: businesses are systems, and every system there are pressure points. Okay, there are people who hold pieces of the system together. Sometimes the business owner knows exactly who those people are. Usually you have a pretty good intuitive sense. Sometimes they have to really think about it because it's not something they considered. They're too busy just running the business. Here are some questions that you really need to start asking. So write these down: Who drives revenue? Who owns any key client relationships? Who manages the largest projects that I've got going on in the business? Who else has technical knowledge that nobody else in the business has? Who keeps my lenders and my suppliers confident? All right. Who would it take me 12 to 24 months to properly replace or replace and train? All right. Because training cost is very real. What would cause chaos? Who would cause chaos if they left and they're suddenly gone? All right. What would make who would make my employees or my customers nervous or investors nervous if they were no longer in the business? Those are the people who stand up as your key individuals. You want to start considering insuring. All right. If the answer is nobody, that's also good to know. It means that you maybe either have a more resilient system because you've built processes in place. You've got documented procedures, or your business isn't big enough, or you just don't have a business structure like that. In which case, it's probably just you as the business owner and maybe a partner that you need to consider. All right? So that's how you really start to determine what you need to do. Now, this is one of those silent risks. It sits in the background of every business. Everything feels fine until one day it isn't. Like, you know, the fire, there was no fire and then all of a sudden there was a fire. The business is scrambling and it's not the best time to go looking for liquidity. Right? Banks don't want to lend you money when you need it to make the business survive because the key person is gone and now they don't want to give it to you. So when everyone needs money, it's always the hardest to get at unless you have proper things in place like good insurance. So where does infinite banking fit into all this? In my opinion, we want to address that a little bit tight in. I've given you a couple examples, but this is where your need from the tool and the process—the tool being insurance and the process of banking. Key insurance is just insurance. It has a purpose. Infinite banking is a process of using a well-structured participating whole life policy as part of a broader capital system. All right. So the business needs protection. Cool. We know that there's a risk there. We got to insure certain people. We're going to do that anyway. If we use the right structure of insurance, and because the business also needs capital, it has high capital demands, and we need to store money At various times when it builds up and then it draws down, builds up, draws down, policies can come into play and we can combine the key person and the policy structure to build something that allows that storage facility to exist so that when you need capital for expansion, for a new hire, for a bonus, for different things, you have a place to tap into it and you can work with that reservoir as you see fit. That is all about control. Where is the company's long-term warehouse of capital going to reside? It must reside somewhere. There's no better place to have it reside, in my opinion, than here. Okay. So instead of just asking what happens if this person dies, we should be asking, where is my business going to warehouse capital? Who's going to control the liquidity to that capital? And are we building an asset at the same time as we're protecting the business? And is there any disadvantage to doing both of those things at the same time? All right. These are really good questions that you need to be asking. Now, you can solve the key person thing with just term insurance. That's designed, it's going to be inexpensive, but it's also only going to solve it for a period of time. And it's not going to help you build a capital reservoir. So you still need a capital reservoir. You still have business demands. So there's a sensible reason to look at combining these 2 things together in a good structured conversation with an advisor who understands essentially. Hey, if you're getting value from this And you haven't subscribed yet, hit the subscribe button right now. Look, we're marching towards 10,000 subscribers and every single one helps us bring more powerful content on taking control of your money. Again, person's got to be insurable. They have to provide consent. The amount's got to be reasonable for the insurance company to do it. Probability is you're going to need a cover letter and documentation in order to tell a story as to why. All right. And we also talked about who is likely not going to be a fit. We give several examples of who is the right type of individual who would be demonstrated as a key person. And that should give you a really rounded view as to how you should do this. Now, if you're the business owner, you're the founder or a major partner, you should be getting insurance in place. And a buy-sell arrangement, while we talked about the key person, we only briefly touched on the buy-sell element. But the key idea of a buy-sell arrangement is that If we, you know, lose somebody, again, we have that shark attack. We're talking about like our case study for the carpet business where Jeff Moses, you know, died in a plane crash. Well, not only was a key person, he was a founder, but his family has the right to go on living. And so his share value of the business is worth something and that needs to get valued. Well, what happens is if the insurance comes into the business and they have a large sum of capital, They don't have to now have the spouse who's grieving and their family set on, you know, come sit at the board seat and start determining and navigating the rules of the business and trying to dismantle the business. They want the business to keep moving. So they have the capital, they value the shares, and they can pay out the share value. So it's a buy-sell arrangement. We're buying out your value. You're selling your shares at the same time. We're buying you out. And your family gets to go off, you know, down the next path of life, handle the grieving process that you need to, but they get to continue on living and they get the appropriate value for the shares of the business that their deceased individual helped build and construct.
