Life insurance

Could it be your final act of leadership? If you are a CEO or partner and do not have it, please consider changing the scenario.

The A/E/P and environmental consulting industry has many unique qualities, but one I find intriguing is the longevity of careers at a single firm. Zweig Group’s 2017 Principals, Partners & Owners Survey reports that 60 percent of the respondents have been with their firm for 17 to 31 years, with the median of that group having a tenure of 24 years. The median time as an owner is 18 years. These statistics confirm that owners, principals, and partners have a solid commitment not only to the profession but to the firm. So, I find it even more intriguing that a current 34 percent have not secured a very important detail to take care of the long-term: life insurance coverage.

People in general do not like to think about their own demise and it’s easy to push planning for that event to the back burner, especially when the majority of firm owners (73 percent) are between the ages of 40 and 59. But, as an owner, addressing the issue and securing the firm’s future is an ultimate expression of love for your company and for the people whose livelihood depends upon its existence.

Having spent many years valuing privately-held businesses, I fully understand the impact the death of a partner can have on a firm, not only from the personal perspective but also the loss of business, productivity, and financial security. It’s a pretty safe bet that shareholders are also the primary rainmakers and the sudden absence of that revenue will have long-term ramifications on business operations. For those left behind, the impact also involves the change in ownership when an heir inherits that person’s stock. Without the means to remedy the situation with the buyout of those shares through life insurance proceeds and a buy-sell agreement the business could find itself in jeopardy. Those firms with sole ownership of the shares are even more at risk because remaining staff may not have the money to buy the firm from an heir nor maintain the working capital necessary to move forward.

The investment of a few thousand dollars per year may, in the end, secure the continued existence of the business. Considerations to make when buying this type of insurance include:

  • What is adequate coverage? The firm should carry enough coverage to fully fund the buyout of stock from the deceased’s estate and provide for additional cash to help right the ship. It is advisable that a valuation of the shares be conducted at the initiation of this process. Thereafter, regular monitoring of share value should be done to ensure that coverage is keeping pace with growth in stock value.
  • What happens to the coverage when a partner leaves or retires? A majority of policies are purchased as permanent life insurance. However, term life insurance may be less expensive and can be bought to cover a partner until he or she leaves or retires.
  • Should this be strictly life insurance or should disability also be covered? Considering the age range of the average partner in an A/E/P firm per the survey, disability is as likely if not more so than death.

Beyond the owners of stock in your firm, if you have key employees that drive business and the loss would cause instability, key person insurance should be considered for them as well.

From a value perspective, the lack of insurance coverage on owners and key people is a major risk factor that drives discount rates up and values down. This type of coverage is as important as any other and your insurance agent can help to direct you in securing the appropriate policies. If you do not have it, please strongly consider spending the money to get it.

Tracey Eaves, MBA, CBA, CVA, BCA, CMEA is a member of the valuation consulting team at Zweig Group. She has been valuing privately held company interests for more than 17 years. Contact Tracey at or directly at 505.258.8821.

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Posted in Archives | December 11th, 2017 by