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life insurance strategies for business owners
Business Life Insurance For Owners? Your family isn’t the only one in need of protection – your business needs it too! Protect your company and find out how you can help ensure the future of your business.
We’ll show you the best ways to protect your company and who are the top 10 life insurance companies?
Life Insurance for Business Owners
If you were to pass away tomorrow, an insurance policy can protect your family and business. What if you aren’t covered or don’t have enough coverage?
To help you understand if you are prepared for all the possibilities, you need to answer these questions:
- What happens to my family and business if I were to pass away?
- How will I retain and attract the top employees for my company?
- When I retire, what is going to happen to my business?
- What if a key employee were to die?
- How do I protect my business if an unexpected financial situation occurs?
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Getting started
If you’re a business owner, you have a responsibility for a couple of families: the one at home and the one at your company. Securing a policy will provide you an excellent financial foundation and protect your business. Companies of all sizes can benefit from the versatility that coverage can provide.
Business Succession Planning Life Insurance
With business owner life insurance, your company can continue if you were to die. Take a moment and think if your company could operate without you.
A death benefit could provide financial safety for your family, business partner and/or your company.
The death benefit could be used for:
- Liquidity in order make sure the business isn’t sold hastily.
- Used to hire an employee or replacement.
- Provide the money needed to buy the part of the business owned by the deceased.
Securing coverage is important in that it give a period of time for the company to appropriate transitions when an owner dies.
The death benefit allows the business to pay salaries and bills. It allows the remaining owners of the company to purchase the deceased partner’s percentage of the business.
Buy Sell Agreements Life Insurance
When you are one of the owners of a business, you’ll want to be sure you’re protected if one of your partners died unexpectedly. A solution to this problem is a buy-sell agreement. This means that there is a contractual obligation on the surviving partners to buy the interest of the owner who died.
A buy sell agreement is important for several reasons:
- It will provide a death benefit to the estate or spouse of the deceased business owner and cover the lost revenue or income from the company.
- It can eliminate the uncertainty or stress when the surviving beneficiary or spouse has control over the deceased partner’s interest when they may not have the ability to manage the business or want to.
- It decreases the likelihood that the company would be sold in order to buy out the deceased owner’s interest.
A business owner usually funds the buy sell agreement by purchasing a policy for each owner. The other owners of the business are typically the beneficiaries. It depends on how the agreement is constructed. Sometimes the business itself is made the beneficiary.
Learn more: Buy-Sell Agreement
Key Person Life Insurance
Another business continuation strategy is using a key person life insurance policy. Once called “Key Man Insurance”, a key person insurance policy is bought by the business on an important employee and payable to the company. If the key person were to die, the policy can assist in making up for lost earnings and sales. It can also cover the costs of looking for a replacement and training them.
A large business may be able to survive and weather the storm of an employee. However, smaller businesses may depend on certain employees for the company to be successful.
Buying a key person life insurance policy can be very helpful by making sure the company survives the loss of a key employee.
Executive Bonus Plan Life Insurance
A business can help certain key executives buy additional insurance using an executive bonus plan. This is where an executive is the owner of the insurance policy and also pays the insurance premiums. The company will “bonus” the executive. This bonus is the amount equal the insurance premium as well as the tax liabilities.
How is this beneficial? The executive may use the insurance policy cash value as a supplement. This supplement could be for their retirement funds or another purpose. Now if the executive were to pass away when they were employed, the insurance policy’s death benefit will go to the family or beneficiary. This death benefit is usually income tax free.
To summarize the benefits of an Executive Bonus Plan:
- It’s customizable
- Great for employee retention
- Tax deductible for the company
- Easy setup
- A non qualified plan where the employer chooses the employee
Collateral Assignment of Life Insurance
Life insurance is often used for owners needing funds to purchase a company or begin a business. When this occurs, a small business loan is often required. An SBA loan as well as hard money loans often insist on a policy for the borrower. It is important that the primary insured and also the borrower get a policy and use collateral assignment and transfer the portion of the death benefit to the lender or bank.
The collateral assignment will provide coverage to the loan and ultimately provide for your loved ones. This is done by setting aside a portion of insurance proceeds for what is owed on the bank loan. The remaining portion of the death benefit is to be provided to loved ones or family.
What if you didn’t use a collateral assignment?
If you made the bank or lender the only beneficiary, they would collect 100% of the death benefit. It wouldn’t matter how much or little was owed on the bank loan.
Work with Professionals
When it comes to securing coverage and business succession planning, you need to work with professionals. The following are 3 resources you need to use in order to make sure you’re off on the right track:
- Attorney
- Certified Public Accountant
- Independent Life Insurance Agent
If you’re an owner or partner of a company, you will need a competent CPA and attorney to structure your plan. You’ll then need an independent insurance agent to research the best companies based on your goals as well as your health and lifestyle.
Compare Business Life Insurance Quotes
The best starting point is to make sure you’re comparing quotes from multiple companies. You’ll then be able to determine what is the right fit for your specific business needs as well as your budget.
At LIB, we’ve helped thousands of people compare costs from over 40 top rated companies. Let us help you today. We’ll provide you customized quotes and make sure you don’t overpay on your policy.
Final thoughts
Life insurance for company owners can help avoid disasters and build your company. It can be used to attract talent to your company as a valuable benefit. It can build loyalty within your corporation. It helps your employees by protecting their loved ones. When business life insurance for owners is used properly you can protect your company, key employees, partners and family.