The Challenge
Underhill has operated continuously since 1913. One of the reasons for its longevity is a well thought out succession plan. Potential successors are identified early with ownership interests transferred to a new generation whenever a current partner retires. To ensure that there is sufficient cash on hand and that the purchase takes place in a tax efficient manner, Underhill purchases life insurance on each shareholder.
However, the previous solutions had all been temporary in nature. The product chosen to date had been term insurance which renewed at increasingly expensive premiums with the partners choosing to continue working into their sixties and sometimes seventies.
Our Approach
We conducted a thorough review of the needs of the corporation including identifying anticipated retirement dates and post-retirement buy-out periods for the shares. Once we determined the time frame under consideration for each current shareholder, we made recommendations based on expected tenure, current shareholdings and current health.
At the conclusion of our analysis, we:
- Retained an existing ten-year term insurance for one shareholder and accepted the higher renewal premium due to the fact he was uninsurable.
- Applied for a new ten year term insurance policy which offered a lower premium than accepting the renewal of the existing coverage despite the fact that there were some health concerns
- Converted an existing ten year term policy into level term to age 100 coverage to avoid two anticipated future renewal increases
- Purchased new level premium to age 100 insurance for all remaining shareholders which offer the flexibility to take future premium holidays
