Life Insurance For Investors

7 Replies

I have a life insurance question for the community. I'm looking to purchase an apartment building with a few investors. There would be a minimum amount of time I'd want everyone to keep this investment so I wanted to have life insurance as a way to help protect everyone's investment. I would prefer not forcing everyone to go out a buy their own policy to cover their portion but rather have one group policy available for everyone where a payout would go to their beneficiaries in the event of a death. 

Is this something any of you have done before? Would this be considered a group life policy? Any information would be extremely helpful.

Each partner should buy insurance on the lives of the other partners. There should also be a formal buy/sell agreement to back it up. Group insurance doesn't work like that. The company can also purchase insurance on the lives of each partner with the intent to buy out a partners share if they die.

Originally posted by @Thomas Rutkowski :

Each partner should buy insurance on the lives of the other partners. There should also be a formal buy/sell agreement to back it up. Group insurance doesn't work like that. The company can also purchase insurance on the lives of each partner with the intent to buy out a partners share if they die.

 

Thank you Thomas, the last sentence is what I am getting at. This is exactly what I'd want. Payoff the families of the investors if something were to happen. Is there a specific name for that type of insurance or is this basically a sort of term life insurance?

@Jeff Johnton

Its plain old life insurance. You can do it with Term if you think the duration of the project will be less than the term of the policy. This is fine when you want to keep the cost down. Permanent life insurance will allow the company to cash in the policies and get most, if not all, of the money back when the insurance is no longer necessary. It depends how the policies are structured and how long they've had to accumulate cash value.

You want what is called an "Entity Purchase" buy-sell agreement. The company will purchase one policy for each partner with the company as the beneficiary. The company can then use the funds to buy out the interest of a deceased partner.

Originally posted by @Thomas Rutkowski :

Permanent life insurance will allow the company to cash in the policies and get most, if not all, of the money back when the insurance is no longer necessary. It depends how the policies are structured and how long they've had to accumulate cash value.

Permanent policies are designed to make suckers think they are smart by not "throwing money away on a term policy".  With the high cost of this investment, the low interest rates, and the likely short duration of the policy to match the loan, this type policy is going to be very expensive and slow to build value. Better to get a term policy with a Return of Premium rider. Gives you back 100% of premiums paid at the end of the term. You get a portion back if you cancel before the end of term.

My 9-5 is insurance and I've seen and worked on these policy wishes before. Biggest problem is going to be when one of the people in the group is uninsurable individually. Depending on the size of the group, it may be possible to get a guaranteed issue or worst case simplified issue group policy.  

Originally posted by @Thomas Rutkowski :

Your 9-5 may be insurance, but I don't think you understand what is going on under the hood of the policy. A return of premium term is going to be built on a Universal Life chassis. Where do you think the money is coming from?

Other than both being life insurance, Term with ROP rider and UL have zero relation.