Use insurance to lure investors

[livefree]

As a way to attract investors I've been looking into the idea of getting an insurance policy in the amount of an investors investment and making them the beneficiary. I ran across an entrepreneur some years ago who was using this strategy very successfully but have unfortunatley lost contact with him. None of the insurance companies I spoke with objected to the idea but they really had no idea how they would structure it.

I understand some large investors require insurance for the amount of their investment before a particular type of transaction is completed.

Has anyone ran across this strategy? How would you do this?

[rogercbryan]

That doesn't make sense.. what are you insuring?

[Encrypted]

Agreed.. You're insuring your investors money? That makes no sense. In other words, you're taking a loan out on your loan? lol

[jrford]

Mkay...this is actually very common. I have a background in the insurance field and this is structured as a keyman life insurance policy. The life insurance is on you the borrower of the money, and the death benefit is the amount being borrowed. Then the beneficiary of the policy is the investor. Pretty simple! This only covers the investors money in the invent you die! Hope this helps!

[MoneyMagnet]

I don't see how this would entice a larger audience of investors if you got a life insurance policy to cover the investment....I wouldn't like the idea that there is a price tag on my life in the event that an investment falls through and the investor is out of money.

[ourcreation]

Banks require keyman's life insurance all the time on the principles of commercial companies for the reasons that jrford listed. The owners of a business are usually crucial. If one of them dies, the company will often either be dissolved right then and there, or gradually deteriorate to the point that they begin defaulting on their loans. The insurance helps defray the bank's losses. If the bank requires it and the owners refuse, that's a deal breaker;however, business owners don't generally consider it a big deal and I haven't ever seen a customer refuse to provide it at the bank I work at.

Although we've often joked about killing principles of companies with late loans and keyman's life insurance, I have yet to see it followed through.

Insurance policy directly on the investment amount? Never heard of that.

[DIANNE]

Hi
Normally life insurance is something very important that every one takes. But I think with life insurance we must need to do some other investment. As I do, I have invested in shares and real estate. I believe that real estate investment is the best way to do investment.

[jasaunders]

Keyman life insurance is very common in new ventures, but I don't believe so much so in attracting investors and especially not in the seed stage. However, keyman insurance is often taken out in venture financing rounds and can be a stipulation of investors if the venture is largely dependent on one or very few key people. I don't think it "attracts" investors though as much as it can be a requirement.