Business isn’t only about business; it’s also about life – the owner’s life and family, and the lives of employees and their families. Keeping a business – on which lives depend – vibrant and prosperous is an important part of business planning. That is why planning should always consider insurance, especially life insurance. Here’s why:
BUY-SELL FUNDING A succession plan is necessary to direct business transfer upon specific life-changing events, especially the loss of the owner. If there are partners, a buy-sell agreement supported by life insurance can eliminate the need to liquidate critical assets with ready cash on an income tax-free basis.
KEY PERSON PROTECTION Many businesses rely on the performance or expertise of one individual. If that person dies pre-retirement, life insurance can provide income tax-free cash to supplement the critical loss in top line contributions until someone of equal skill or knowledge is hired. Key-person insurance can serve as collateral in a business loan to ensure payments are made if a performer’s contributions are lost.
EXECUTIVE BONUSES Through an executive bonus plan, the business pays the premium for a life insurance policy owned by an executive. He or she receives permanent life insurance protection that builds income tax-deferred cash value over time and the premium amount is tax deductible to the business. The premium is taxed as ordinary income to the executive, and proceeds are payable to the policy beneficiary free of income taxes.
ESTATE EQUALIZATION When some family members are active in running a business and some aren’t, trying to divide a business equally among family can set them at odds. Life insurance can provide compensation to family members not involved in running the company that is equal to the value of the business left to family members who will ultimately take ownership of the business.
There are many ways to support your business and those who make it work. Life insurance is one of those ways that can literally pay dividends. Your advisor can help you coordinate with your legal and insurance professionals to ensure the right coverage and beneficiaries are in place to support the longevity of your business.
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