What to do - business partner can't qualify for Life Insurance

Question

What other strategies are there when your business partner can't qualify for life Insurance? We have an operating agreement and a buy and sell doc. This is a new partnership and not much equity in our 2 properties to really allow the other partner to REFI to pay off the surviving partners significant other. Just thinking ahead while the company is in its infancy. @Mindy Jensen

Chris Webb · Answer

Hi @Debbie Richards. I have an insurance license from a previous career (not sales) and I know that you may have to talk to several insurance people, If you need a referral, let me know. There are lesser known, but still reputable insurance firms that can insure people who have been rejected.

Zachary Paschke · Answer

When a situation like this comes up you insure what you can. If traditional life is completely out of the picture you go to a failure to survive policy (where the carrier excludes the uninsurable condition, but covers other forms of death) or an accidental death/ accidental disability.

Accidental is really inexpensive, failure to survive has a pretty serious premium.

That said I’ve been able to get people coverage they couldn’t from others. I specialize in the health complication market, so it’s always worth trying again.

Before he reaches out to someone he should have all his health data and any letters declining coverage.

You’re also right that CA makes it harder. Many insurers don’t like doing business there.

Debbie Richards · Answer

@Chris Webb We are in California - not sure if that matters, but would love some other recommendations! He is a great partner just has a health issue that seems to be a problem for some of the insurance companies, he is actually takes really good care of himself and is in good shape.

Mindy Jensen · Answer

Why can't your partner qualify for Life Insurance? If the partner is uninsurable, are they really a good partner to be involved with? (Not judging, I don't know the situation.)

With a new partnership, the operating agreement could be written up such that the partnership simply continues on should the one uninsured partner pass away.

All spouses/significant others should sign off on this operating agreement so there's no misunderstanding down the road.

Richard Turner · Answer

Forced sales of property to meet death obligations can be a financial detrimental to both partners.  Even if he was insurable, as you grow it may be difficult to keep up with the valuations and increased policy needs. In the event of death or incapacity of a partner, I suggest the partnership agreement provide a method of property valuation.  in the event, there is no life insurance, insufficient cash or financing to meet the payoff amount, create a formula that determines the upfront amount and payment terms for the balance of the buyout by the partnership. The valuation formula in the partnership agreement is the most important part of your agreement because it assures a fair handling of the valuation.

What to do - business partner can't qualify for Life Insurance

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