An illustration of the pre-tax profits and sales a business would have to generate in order to equal the income-tax-free death benefits of life insurance.
Complete the requested information and click the 'Submit' button. Use only whole dollar amounts and do not use commas. Assume all entries are required unless otherwise specified. Personal Information:
Name of the Prospect (optional):
Date to Appear on Cover Page (change as appropriate):
Tax Bracket: Select the appropriate tax bracket for the entity that will be purchasing the life insurance -- either the corporate tax bracket or, in the case of an unincorporated business, the individual tax bracket of the sole proprietor or partners.
Corporate
Individual
15%
10%
25%
15%
34%
25%
35%
28%
38%
33%
39%
35%
Other: %
Life Insurance Death Benefit:Enter the amount of the life insurance death benefit. Do not use commas.
$
Pre-Tax Profit Margins: Enter a range of three pre-tax profit margins to be used to illustrate the sales or revenues required to produce the pre-tax profits equivalent to the income tax-free life insurance death benefit. Pre-tax profit margin is equal to net profits before taxes divided by total sales or receipts. If uncertain, a pre-tax profit margin of 10% is a conservative estimate and means that for every $1.00 of sales or revenues, the business nets $0.10 before taxes.
An estimate of the value of a key employee to a business based on a variety of valuation methods including:
Capitalization of Salary Method
Contribution to Earnings Method
Present Value of Contribution to Earnings Method
Replacement Cost Method
One Years' Profit Method
Average Estimated Key Employee Valuation
Complete the requested information and click the 'Submit' button. Use only whole dollar amounts and do not use commas. Assume all entries are required unless otherwise specified.
Basic Information:
Name of the Business (optional):
Date to Appear on Cover Page (change as appropriate):
Key Employee Information
Key Employee's Name (optional):
Key Employee's Total Annual Salary (including bonuses):
$
Annual Salary Attributed to Routine Duties: Enter the amount of the key employee's most recent total annual salary that can be considered compensation for performing routine duties...duties that could be performed by someone other than the key employee...duties that do not require the key employee's unique skills and abilities.
$
Responsibility for Overall Management Success: Enter the percentage, from 1% to 100%, that represents how much of the management success of the business can be attributed to the key employee. For example, if there are two owners, each owner may contribute 50% to the overall management success of the business.
%
Years to Replace: Select the number of years that it is likely to take in order to locate, hire and train a replacement who is capable of replacing the key employee's contribution to the business.
1
5
8
2
6
9
3
7
10
4
Business Information:
Total Assets Adjusted for Appreciation/Depreciation:
$
Enter a figure that represents the market value of business assets (e.g., liquidation value), after adjusting for appreciation and/or depreciation. Otherwise, again enter the total value of business assets from balance sheet.
Average Book Value:
$
Enter business book value (assets minus liabilities) averaged for the most recent five years, or for the number of years in business if less.
Average Annual Net Earnings:
$
Enter annual net earnings averaged for the most recent five years, or for the number of years in business if less. (Annual net business earnings are equal to total salaries paid to all owner-employees, plus any amounts added to surplus, plus any dividends paid.)
Last Completed Year's Profits:
$
Enter the business profits for the most recently-completed fiscal or calendar year. This figure should include the salaries of all owner-employees in excess of replacement costs. An average of several years' profits can be used if profits fluctuate substantially from year to year.
Assumptions:
Capitalization Factor: Select a capitalization factor, or multiplier, that reflects the importance of the key employee's contribution to the success of the business: the more critical the key employee's contribution, the higher the capitalization factor should be.
2
7
3
8
4
9
5
10
6
Reasonable Expected Rate of Return: Select the rate of return that an investor would reasonably expect to receive on an investment of capital in this business. The rate of return selected should reflect the risk assumed by investing in this business:
8% - 10% Low Risk Business
11% - 15% Average Risk Business
16% - 20% Speculative Business
8%
15%
9%
16%
10%
17%
11%
18%
12%
19%
13%
20%
14%
Fair Rate of Investment Return: Select the fair rate of return that the business owner(s) feel they could reasonably earn on the funds they have invested in the business if those funds were invested elsewhere.
