How to Infuse EBITDA
The Life Insurance Policy Audit Case Study
Here is an example of how KBM Consulting, LLC helped a company maintain insurance coverage, cut premiums by half and improve its balance sheet.
A CPA came to us in need of an objective assessment of a client’s $10 million business life insurance policy. The original selling insurance agent was long gone, and although both the CPA and business owner-insured knew they needed the life insurance, they didn’t know how to measure the current policy’s competitiveness.
The client owns a manufacturing plant in suburban Philadelphia. His company was paying $165,000 annually for the universal life policy, which had been in force for 14 years and never had been reviewed. At 61, the business owner is active, exercises several times per week and is in good health. The business pays the insurance premiums and is the owner and the beneficiary of the policy. This Key Executive coverage was put in place in the case of retirement or premature death. If the business owner dies, the business would receive the life insurance benefits and could use the funds to pay off debt, hire a key executive or possibly use the funds to buy time until the business could be sold and/or the assets could be liquidated.
Using our patented life insurance pricing and performance evaluation tool, KBM Consulting, LLC assessed the effective value of the current policy and pinpointed underperforming sub-accounts. The analysis provided value to the CPA and his client by:
- Identifying a better performing policy at 50% of the annual premium;
- Leveraging marketplace competition;
- Creating the opportunity for the business to improve cash flow and EBITDA by putting the premium savings into the business;
- Mitigating the client’s risk by identifying a policy with a more highly rated carrier and whose historical performance and pricing stability was superior to that of the previous carrier; and
- Helping the CPA fulfill his fiduciary responsibility.
KBM Consulting’s independent research revealed that there were 43 available products in Pennsylvania suitable to our client’s circumstances. The existing policy was $83,947 more costly annually than products known to be available in the market. Policy-Logix replaced this $10 million universal life insurance contract with a better-performing life insurance policy from a more highly rated carrier and with an annual premium of $81,067. The reduced premium provided the company with a cash flow windfall.
The CPA was amazed at how there could be such a huge premium spread between the new policy and the existing policy.
How did KBM Consulting achieve this?
In this case, the existing insurance carrier no longer sold this universal life product and was not motivated to keep its pricing competitive. In the case of the recommended policy, this chosen carrier had put in place an aggressive pricing structure within some specific age ranges, and this business owner-client fell into this sweet spot.
The business increased cash flow and EBITDA by substantially reducing its life insurance premiums through active management of the policy.