Thank you again for being here. My name is Steve Clemens, President of URL Insurance Group, and I look forward to walking through this presentation with you. Our agenda includes sharing key business succession statistics, reviewing common small business life insurance needs and opportunities such as buy-sell planning, key person insurance, and executive benefits, and highlighting tips and tools you can use with your next business life insurance opportunity.

As you follow along, there are handouts available for download during the presentation. These include helpful one-page resources on buy-sell agreements, key person insurance, and executive benefits that you can use both for your own reference and with your clients. Over our more than 40 years at URL, we have used all of these strategies within our own business, and they have helped us succeed over time.

There are approximately 2.9 million businesses in the United States owned by individuals age 55 and older. These businesses account for over 32 million employees, $1.3 trillion in payroll, and $6.5 trillion in revenue. Seventy-three percent of privately held companies plan to transition ownership within the next 10 years, and half of those plan to exit within the next five years. Seventy percent of business owners prefer internal transfers, whether to key employees or second-generation family members, and more than half aim to pass their business to family.

Despite these intentions, transition success rates are low. Only 30 percent of family businesses survive the transition from the first to the second generation, 12 percent make it to the third generation, and just 3 percent reach the fourth generation. Additionally, 70 percent of small businesses listed for sale fail to find a buyer. Many owners expect to sell their business to fund retirement, yet seven out of ten never do.

Retirement challenges are significant. Twenty percent of small business owners have nothing saved for retirement, one-third believe they will never retire, and 40 percent rely on selling their business as their primary retirement strategy. At the same time, nearly two-thirds of family businesses lack a documented buy-sell plan. This creates a tremendous opportunity for meaningful conversations around business succession planning.

Throughout this presentation, we will focus on protecting against the death of a key employee through key person life insurance, protecting against employee departure through strategies such as executive bonus plans, and protecting the eventual transition of ownership through buy-sell agreements. All of these strategies are most effectively funded with life insurance and can be presented in a straightforward and client-friendly way.

Having a succession plan in place has several positive impacts. Clients gain confidence that their customers will continue to receive consistent service, employees feel more secure knowing there is a future plan for the business, and business value is enhanced through stability and foresight. A clear and orderly transition process helps prevent disputes, establishes a defined valuation, and provides liquidity so an owner’s interest can be converted into cash for the benefit of the owner and their heirs. Importantly, it prevents situations where surviving partners are forced into business relationships with heirs who may have no involvement or experience in the company.

A buy-sell agreement is a legally binding contract that outlines how ownership will transfer at an agreed-upon value. While the agreement itself is critical, it only works if the purchaser has the cash to fund the buyout. Life insurance is the most cost-effective way to provide that liquidity. There are several common structures, with cross-purchase agreements becoming increasingly popular. In these arrangements, each owner purchases and owns life insurance on the other owners to fund the buyout.

Recent legal developments have made proper structuring even more important. A Supreme Court ruling in June 2024 affirmed that, in certain entity-purchase arrangements, life insurance proceeds may be included in the value of the business and subject to estate taxation if not structured correctly. In contrast, cross-purchase arrangements may avoid this issue. As a result, it is more important than ever to review existing buy-sell agreements and ensure they align with current rules.

When establishing a buy-sell agreement, attorneys should draft the legal documents, insurance professionals should structure and fund the insurance properly, and CPAs should evaluate the tax implications. Clear communication with family members and staff is essential. A fully funded and well-communicated plan can prevent delays, legal disputes, and unnecessary stress during an already difficult time.

URL Insurance Group has firsthand experience with the importance of proper planning. We are a family business approaching our 40th year. When a founding partner passed away early in the company’s history, a properly funded buy-sell agreement ensured a smooth transition, fair compensation for the family, and continuity for the business. That planning made all the difference.

To illustrate a basic cross-purchase example, consider a business owned equally by two partners. Each partner purchases a life insurance policy on the other, with coverage equal to their share of the business value. If one partner passes away, the surviving partner receives the death benefit and uses it to purchase the deceased partner’s share. Policies can be term or permanent, adjusted over time as the business grows and its valuation increases.

Key person life insurance is another essential planning tool. A key employee is someone whose loss would significantly impact management, sales, or operations. The death of such an employee can result in lost revenue, operational disruption, and substantial replacement costs. Key person insurance provides funds to offset these losses and support the transition.

At URL, we experienced the loss of a key executive who led our Medicare division. A key person policy provided financial support to the business during the transition and allowed us to assist the employee’s family. Most insurers allow coverage of up to ten times a key employee’s annual income, with flexibility for special circumstances when properly explained to underwriting.

Key person policies offer several advantages. They provide funds to offset losses, recruit and train replacements, and, if permanent insurance is used, access cash value during the employee’s lifetime. Many small businesses are unaware this coverage exists, and discussing it demonstrates your commitment to protecting their business.

Executive bonus plans using life insurance are another powerful strategy. These plans help retain valuable employees by providing them with life insurance funded by the employer. The employee owns the policy, receives the death benefit, and benefits from tax-deferred cash accumulation and potential tax-free retirement income. For the business, premiums are generally tax deductible, plans are easy to implement, and benefits can be selectively offered.

In a typical executive bonus example, the company pays premiums for a key employee over a defined period. The policy builds significant cash value, and upon retirement, the employee can access tax-advantaged income through policy loans. This creates long-term retention and aligns the employee’s financial future with the success of the company.

URL provides a wide range of tools to support these conversations. Our website includes customizable marketing materials, consumer-friendly presentations, one-page summaries, short educational videos, case studies, sample letters, social media content, and specimen buy-sell agreements. These resources are designed to make it easy to educate clients and start meaningful discussions.

When you need help with a case, URL’s Life Markets team is ready to assist with illustrations, product selection, and strategy. If you prefer, our Orion referral team can handle the presentation and sale on your behalf and provide a referral fee, requiring only a warm introduction to the client.

Getting started is simple. Identify your business owner clients and ask when they last reviewed their buy-sell agreement. Given recent legal changes, many agreements may need review or revision. From there, discussions naturally expand to key person coverage and executive benefits. Use URL’s expertise and tools as an extension of your services.

Thank you for your time and attention. I hope this presentation equips you to confidently discuss business succession planning, buy-sell agreements, key person insurance, and executive bonus strategies with your clients. I am happy to take any questions you may have.