- Life Insurance for Business Owners
If you own your own business, chances are you have at least thought about the conditions under which you will make your departure from
the business and who is going to take over after you leave. Business continuation is difficult enough under normal circumstances, but if it
has to take place following the unexpected death of a key person or owner, the complications can increase exponentially.
Company-owned life insurance is one way to help protect a business from financial problems caused by the unexpected death of a key
employee, partner, or co-owner. If the covered individual dies, the proceeds from this type of insurance can help in several ways. Here
are some examples.
Fund a Buy-Sell Agreement
A buy-sell agreement typically specifies in advance what will happen if an owner or a key person leaves the company, either through a
personal decision or because of death or disability. The death benefit from a company-owned life insurance policy can be used to
purchase the decedent’s interest in the company from his or her heirs.
Keep the Business Going
If a decision is made to continue the business, there may be a period when operations cease while the survivors develop a plan to move
forward. The death benefit can be used to help replace lost revenue or to pay costs associated with keeping the doors open, including
rent, utilities, lease payments, and payroll. It may also help the surviving owners avoid borrowing money or selling assets.
Replace Lost Income
If a business owner has family members who depend on the income from a business, which simply could not continue if he or she were
suddenly gone, the proceeds from company-owned life insurance could help replace the lost income and help protect the family’s quality
of life while they adjust and move on.
The appropriate coverage amount will depend on several factors. It could be a multiple of the business owner’s annual salary or the
company’s operating budget. Don’t forget to factor in such details as the cost of hiring and training a successor, where applicable, and
any debts that the family may have to repay.
A thorough examination of a business and the related personnel should be conducted before the exact amount of coverage is
determined.
The loss of an owner can be devastating to a small business. A company-owned life insurance policy may help reduce the financial
consequences if such a loss were to occur.
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Note: The information provided here is to assist you in financial planning and understanding types of life insurance. The
information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any
federal tax penalties. You are encouraged to seek tax or legal advice from a professional and licensed tax or legal advisor.
As with most financial decisions, there are associated expenses with the purchase of life insurance. Policies commonly have
contract limitations, fees, and charges, which can include mortality and expense charges. Most have surrender charges that
are assessed during the early years of the contract if the contract owner surrenders the policy; plus, there could be income
tax implications. Any guarantees are contingent on the claims-paying ability of the issuing company. Life insurance is not
guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed
by, any bank or savings association.
information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any
federal tax penalties. You are encouraged to seek tax or legal advice from a professional and licensed tax or legal advisor.
As with most financial decisions, there are associated expenses with the purchase of life insurance. Policies commonly have
contract limitations, fees, and charges, which can include mortality and expense charges. Most have surrender charges that
are assessed during the early years of the contract if the contract owner surrenders the policy; plus, there could be income
tax implications. Any guarantees are contingent on the claims-paying ability of the issuing company. Life insurance is not
guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed
by, any bank or savings association.
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