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Key Man Life Insurance Explained for Business Owners - YouTube
Channel: The Money Advantage
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- Let's talk about how to prevent
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one of the greatest threats to you,
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your business and your business' revenue,
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and therefore your livelihood.
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It's the loss of a key employee.
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Now, we often think of
our assets in business
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as things like the goodwill that we have
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or our reputation or our assets
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or our equipment and our inventory
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and our unique systems and processes
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that make us be able to
deliver that unique value.
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But really, your employees
are the greatest assets.
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What they do is what allows
your business to move forward.
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Think about someone in your business
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who is really one of
those critical components,
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almost like a pillar in your business.
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That might be a key salesperson
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or possibly a key technician,
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depending on what type
of business you have.
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Often, these people have
decision-making power.
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They usually have a high salary.
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And usually somehow they have this skill
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and knowledge and expertise
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that would just be extremely
difficult to replace.
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Now, if you lost that person,
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not only are you losing that person
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but that could have potential
impact to your business
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because they're no longer able to provide
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that unique experience
and skill and ability.
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You're gonna have to go find
somebody to replace them
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and that costs money
and it costs you time.
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And in that time frame,
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you're probably going to
have to hire somebody,
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train and develop them,
which also costs money,
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and then you're gonna be in a position
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where you have to pay
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for mistakes that they might along the way
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as they really get up to speed.
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So, what are a the few ways
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you can think about this cost in advance
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and really be able to prepare for that
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so that it doesn't sink your business?
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Well, one option is something
called a sinking fund.
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And this is where you put money aside
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on a monthly or annual basis
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and it accumulates large enough
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that you can use that
sinking fund to compensate
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if you did lose that key employee.
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Now, the challenge is,
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an event like that is something
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that is very difficult to plan for.
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You have no idea when or
how or if it might happen,
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and so a sinking fund may not
have the time that you need
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to build up sufficient funds.
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You can think also of
paying out of cash flow.
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Maybe your business is thriving right now.
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But think about the
potential loss of cash flow
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that could occur if you
lost that key person.
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And then would you have enough cash flow
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to cover in the mean time the shortfall
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that is caused by their absence?
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You also could think
about business reserves.
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But do you really wanna
deplete those reserves
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at a time that you might
need them the most?
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And then sometimes people would look
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at getting a business loan.
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But, however, the bank
may look at your business
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as more risky now that
that person is gone.
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You may not have the same goodwill
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and the same revenue stream
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at that critical moment.
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So here's why life insurance
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can really fill the gap in a powerful way.
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First of all, it's the only
self-completing sinking fund
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that you can have,
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because as you pay premiums in
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on a monthly or annual basis,
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you know that if that person passes away
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at whatever point that is,
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you'll have the full death benefit
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to be able to compensate the business
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and be able to inject that capital back in
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so that you can sustain
during that critical moment.
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Now, also it's something
that you're paying over time
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so you're not having to
come up with these funds
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all at once.
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Another thing to think about is
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there's different types of life insurance,
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and if you use cash value life insurance,
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specifically an infinite banking policy
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that's high-cash value, dividend-paying,
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whole-life insurance policy
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with a mutual company,
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what you have is you have this cash value
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that is accessible to the business
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that the business can use for anything.
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They can use it for emergencies,
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for opportunities that might be
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completely unrelated to that key person.
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So you're really getting your
dollars to do multiple things.
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So, one thing I wanna mention
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about key person life insurance
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is that the business
is paying the premiums.
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The policy's on the
life of the key person.
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And if that person passes away,
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then the beneficiary is the business.
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So the proceeds or the death benefit
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is being paid to the business.
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Now, a couple of other things
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you wanna think about with this
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are that you might want to have
that policy be transferable,
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meaning if that key person
moved on from your company
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and you hired another
person to fill their role,
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you could transfer the policy
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without having to start a new one.
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That might be subject to underwriting,
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but you're gonna be able to
maintain your cash value.
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So, when you look at the big picture,
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this is a really powerful
way to get your dollars
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doing more than one thing.
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Not only can you be
building business reserves
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but you also can be
protecting or mitigating
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or indemnifying against the loss,
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the financial hit that might happen
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if a key person were to pass away.
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This then solidifies your peace of mind
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and really is an ultimate
protection component.
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It really comes down to this.
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It is a protection
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that allows you to have the
peace of mind of knowing
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that nothing can really
take away that wealth
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that you're building in your business,
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and that the potential
loss of a key person
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is not going to devastate you financially.
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That peace of mind that allows
you to walk in abundance
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and really have the greatest creativity
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and move your business forward
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and really make the best decisions
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so that you can innovate and serve people
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to your greatest capacity.
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Hey, I hope you liked this video.
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If you did, click the link
in the description box below
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for more information.
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And don't forget to like this video.
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