Many people think about getting Life Insurance to protect their families, but what about your business?
Whether you own a small or large business, it’s important you address what happens if you, one of your partners, or one of your key people should meet an unexpected death.
If you don’t have Business Life Insurance, you could find you and your company at the wrong end of an entangled legal mess.
What is Business Life Insurance?
This type of policy is a life insurance policy which is a purchased for primary executive or other key personnel in a company where the company is named as the beneficiary. Business Life Insurance can also be used to as to cover some or all of your employees as an incentive to join your company.
This type of coverage is also ideal for sole proprietors to cover their business and financial obligations should they die without adding extra burdens to their survivors. Additionally, it can be used to cover business loans. The most common types of life insurance to for businesses are term life insurance and universal life insurance policies with cash value.
Plus, there are a number of tax advantages. Although some of the costs to purchase this insurance are not tax deductible, others advantages are present. Most of the payouts a company receives when the company is the named beneficiary are tax free. The tax advantages can be better spelled out by your insurance agent.
Business Life Insurance can be applied in a number of different ways including:
Let’s look at each one in more detail.
Many business people who start businesses do so with one or more partners. These types of partnerships are usually set up under a legally binding contract set up and negotiated through their lawyer.
One of the standard clauses contained within these contracts deal is the buy-sell agreement. This clause deals with how the partners agree to buy or sell each other’s stake in the company and includes what should happen when one of the partners dies.
The usual agreement is that the surviving partner(s) agrees to buy out the deceased partner’s shares. But, what if you don’t have the cash liquidity to satisfy this part of the contractual agreement?
You might be refused a loan if you try and go that route, and then you will be in a real bind, both legally and financially as you will still have to satisfy your financial obligations under the contract.
Business life insurance protects both you and your partner(s) in those tenuous situations because this form of coverage will enable you to fund and fulfill the buy-sell agreement in the event of an untimely death of one of the partners.
The benefits payable also depends on the type business life insurance policy that is purchased. A ‘Term Life Policy’ will pay death benefits only, but if you get a ‘Permanent’ Life Policy’, there is also the cash value accumulation along with the death benefits that is also available to the surviving partners and/or heirs.
Employee Benefit Programs
Business Life Insurance can also be used as part of an employee benefit package for some or all your employees. There are several ways this can be utilized. For example, you have the option of providing the following:
- Split Dollar Plan – Where the death benefit or a major portion goes to the company as named beneficiary and the cash value goes to the employee’s beneficiary of the policy.
- Reverse Split Dollar Plan – Where the reverse of the above occurs and the owner/company gets the cash value and the employee or other named beneficiary gets the death benefits.
- Group Life Insurance – Where you provide life insurance to some or all of your employees as a special employment incentive because the cost to them is either nominal or absorbed by the employer, and be used to attract new employees.
- Death Benefit Only Plan – Where death benefits would be paid to the named beneficiary of an employee and which is a non-taxable benefit for the employee’s estate.
There are variations of these policies which provide considerable latitude in your choices. They also offer a number of tax benefits that can be beneficial to business owners. You will have to carefully consider your needs relative to the types of policies which are available.
Key Man Coverage
The unexpected death of a key executive or primary shareholder of a company can cause a disruption of your business such as the possible loss of customers and the time and effort it takes to train a replacement.
These types of loss of work and financial disruptions can be costly to a company for a variety of reasons, so this type of coverage helps negate any financial disruptions that might occur as a result.
Guaranteeing a Business Loan
Many businesses borrow money either at the initial set-up of the business or simply through regular business operations such as to purchase new equipment or other requirements.
Lenders want these loans to be protected as much as possible. So, the purchase of Business Life Insurance such as Business Credit Life Insurance is essential because it guarantees that the business loan will be re-paid to the lender should the borrower die.
For more information about life insurance for businesses or for a quote, please call us at 888-603-2876. Thank you.