Giving Scrutiny to Your Business Continuity Part 2

Here's the second of a four part series titled Giving Scrutiny to Your Business Continuity.

DIAGRAM B 

Buy/Sell Agreement
(Cross Purchase Plan)

For Policy on Life Stockholder “B”:
Policy Values Owned by Stockholder “A.”

At Death of Stockholder “B”:

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DIAGRAM C 

Buy/Sell Agreement
(Stock Redemption Plan)

For Policy on Life of Each Stockholder;
Policy Values Owned by Aggressive, Inc.

‍At Death of Any Stockholder:

‍

Today, when we pick someone to insure our future, we better do it as though our financial life depended on it—because it does. 

Twenty-two billion dollars in corporate bonds defaulted in 1990, and the Bond Investors Association projected $25 billion more in 1991. According to a study prepared by an American Express division and reported by Bill Sing in the Los Angeles Times, there is "significant risk" that a severe economic downturn or decline in major investment markets could result in the insolvency of one-fifth of the nation's major life insurers! How can we avoid this historically significant investment trap? 

First of all, don't rely on your insurance salesperson's opinion. Second, remember there is no such thing as extra yield without extra risk. Third, and most important, check what the rating services say. Three primary services rate insurance company financial strength—Moody's, Standard and Poor, and A. M. Best. 

In February, 1991, Moody's rated 71 North American life insurers and gave their highest AAA rating to only 17. During the same month, Standard and Poor rated 103 North American companies and gave their highest AAA rating to 40. A. M. Best, the "gentler and kinder" rating service who—unlike the others—rates only insurance companies, recently gave their top A+ (Superior) rating to 259 insurers. Also unlike the others, Best has 15 Financial Size Categories ranging from policyholder surplus reserves of one million dollars, all the way up to two billion plus. 

While the above statistics are helpful, selecting the right insurer can still be a confusing task. So let's get to the bottom line. Of the more than 1,000 companies ready to sell you life insurance, only 12 hold the highest rating from all three rating agencies. Among companies with two billion or more in surplus reserves there are only four: New York Life, Metropolitan Life, Northwestern Mutual, and Prudential. Other companies qualifying among the elite are Aetna, Connecticut General, John Hancock, Massachusetts Mutual, Principal, Nationwide, Guardian, and Teachers Insurance and Annuity. 

Your choice of an insurance carrier to fund your personal and business planning will impact your life for a long time. When I chose Steve Garry and New York Life several years ago, the junk bond alarm hadn't yet sounded. Nonetheless, Steve and I talked about these questions at length. When you have millions of insurance dollars on the line as I have, quality and security become important words. I was sensitive to quality because I knew everything in life has a cycle and that someday my diligence might be important. That day has already come.