• David Grammig

Why Every SFO Should Have Life Insurance

For those of us who have not only a family but a family office as well, the issue of life insurance is doubly vital. That’s because loved ones’ losses stand to be financial and professional - as well as personal - if the head of the family office has not taken care of their life insurance. 


It’s never too early to protect your legacy, and to ensure your family office continues to thrive after you’re gone, by looking into life insurance that works for you, your family, and your business. 


Here are the key reasons every single family office should have life insurance in place:


There are tax benefits


While the premiums paid on life insurance are not usually classed as a tax deductible expense (with the exception of Keyman insurance) there are still tax benefits associated with taking out a policy. 


Proceeds can also help beneficiaries who inherit large estates with a value beyond the tax threshold. Leaving such large estates, such as those that might belong to the head of a successful and growing family office, can be a financial burden when it comes to tax. 


In such cases, the payment from a life insurance policy can help with covering the costs for those loved ones who are left behind with the family office portfolio they have inherited.

Families should never have to sell appreciated assets to pay for estate tax ! Life insurance is the answer. Its leverage and insurability will win out. 


Life insurance is a useful asset


Your most useful asset is your insurability. At the death of a key family office stakeholder, the payout from a life insurance policy can directly fund the buy/sell agreement that allows remaining family members to purchase the remaining share of the business. 


Insurance cash value can be used as collateral for real estate purchase. The premiums add up and soon you can have millions to borrow from just making a phone call to the life insurance company or long and drawn out mortgage process. 


Like any other valuable asset your family office might have, life insurance can be borrowed against, giving it immediate monetary value even while the insured individual is still alive and well.


Your options are varied


Your life insurance policy can be tailored to your situation, so every family office should investigate their options. 


With key person or keyman insurance, the policy is taken out by the business on an individual deemed to be essential to the running and success of that business. In the case of a single family office, this would be the head of that family office. This premium can then become a tax deductible expense for the business, even if the proceeds are not tax-free. 


An Irrevocable Life Insurance Trust (ILIT) is also a good option for business owners, placing the life insurance benefit into a trust for its protection from tax.


With a whole life insurance policy, your family is guaranteed a payout, giving them some financial certainty no matter what the future might hold. 


The head of a family office is also uniquely placed to qualify for higher multiples of coverage based on their estate’s future tax liability and not merely their taxable income. 


The most important asset that the Matriarch will hold is his or her insurability. This component will determine the ultimate premium cost.  


Do you perhaps have a large and valuable real estate portfolio, but no readily available cash flow to fund the premiums on the level of insurance you know would be best for your family office? Rather than settle for a lower level policy - and risk a lower payout in the long run - you can access premium financing from a third-party lender to get the kind of coverage you know your family office needs and deserves.


Should you do this, you can also access the kinds of savings that come with paying a single premium, rather than paying annually. Life insurance, like so many assets and services, is discounted with a single upfront payment as opposed to payments being spread over time.


Get the right advice for you


The above is an overview of some of the key reasons a single family office should look into life insurance policies, but the most important part of the process is to take tailored advice from a trusted source which considers your own unique situation. Conducting a special audit on your current plans, and an insurability review, will enable you to take control of your family office’s life insurance policy in a way that will determine the future of your business for your heirs. 


If you have existing insurance and want to complete an audit or need to know your insurability, simply contact CEO Matthew VanWinkle of Stearns and Miller for a free consultation at mvanwinkle88@gmail.com or call 617-304-0627. Matthew can also assist with purchasing real estate in the US, and will donate 5% of generated income to charity in your name.