Business Uses for Life Insurance
Many view life insurance as a way to financially help their family when they pass. But there are many other uses for life insurance, some of these are in the business setting. In this article, we will go over 8 business uses for life insurance.
1. Preventing Liquidation
If you own a business, your family may find themselves in a situation where they must liquidate your business assets to come up with the cash after your pass. This urgency may result in them having to sell the assets for less than market value. You can use life insurance to help prevent this. The death benefit of the life insurance can give your beneficiary’s the cash they need to handle your business appropriately.
2. Key Man Coverage
For some businesses, their survival is dependent on the performance and expertise of one person. For a small company, this person is likely to be the owner.
Keyman coverage is a life insurance policy that the company takes out on the key individual(s). When that person dies the death benefit provides cash so the business can stay afloat until a replacement is found.
3. Obtaining Financing
Businesses often need to borrow money when they are just starting out or they are looking to expand. The bank or other financial institution they are working with may require the owner to purchase a life insurance policy on themselves and name the bank as the beneficiary. This way the bank can guarantee payment on the loan in the event of the owner’s death.
4. Cash Accumulation
A business can purchase a cash accumulating policy, such as whole life, to help provide the business with additional funds. The business can borrow from the cash value of their policy to help finance an expansion or carry them through a financial emergency. Also, the owner may choose to let the cash accrue and use it later as part of their retirement fund.
Group life insurance can be a part of a benefits package for employees. To make it more attractive, the business can pay a portion of the employee’s premium.
6. Buy-Sell Agreements
Businesses with multiple owners need to plan how their portion of ownership will be transferred at their death. Many use buy-sell agreements to accomplish this. One of the ways these agreements can be funded is with life insurance. Each owner would purchase a policy on the other. In the event of death, the benefit is used to purchase the deceased’s share.
7. Additional Protection for Key Executives
Executive employees that have higher incomes often need higher death benefit protection than what typical employer-sponsored group plans provide. This gives increased protection for those employees, thus setting the business apart when trying to recruit executive employees.
8. Provide Executive Bonus
A company can provide additional benefits to their executive employees through an executive bonus plan. With this plan, the executive owns the life policy and pays the premiums. The company gives the executive bonuses that amount to the premium and tax liabilities of the insurance policy. Additionally, the executive can use the cash value of the plan to supplement their retirement or for other reasons. If the employee dies during their employment, the death benefit goes to their family.
No matter the size of your business, there is numerous business uses for life insurance. If you would like to employ one of the ones on this list or have questions, contact a qualified financial planner who can help you with your decision. They can analyze your finances and find the best life insurance solution for your situation.
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