Life Insurance Solutions for Small Business Business Owners
The Small Business Owner and Life Insurance
There are a lot of life insurance solutions for small business owners that can help them achieve their financial goals.
At Decision Tree Financial, we understand that as a small business owner, you have sacrificed a lot to get where you are and we take our responsibility seriously in providing you with the most thorough advise on your overall financial strategy.
Let’s discuss some strategies where life insurance can help protect your business, reduce its taxes and recruit and retain key employees with minimal effects on your bottom line.
A Few Life Insurance Strategies for Small Business Owners
Life Insurance On Your Own Life
You’re likely a key employee in your company. If you were to die, the business would undoubtingly suffer.
If anyone else depends on your ability to work in your business, such as your family members or employees, you will want to have life insurance on your own life. The death benefit life insurance would provide should you pass away will help your family and employees continue living their lives without having to worry about money.
As part of your life insurance plan, you should also consider creating the required legal documents to ensure your business can continue.
Life insurance on your own life can also be structured to help your employees continue to earn a living as the business searches for a new leader. The death of a business owner can cause a business without a succession plan in place to fall apart as customers, creditors, suppliers, and other stakeholders tend to look for new solutions when there is a great deal of uncertainty surrounding any small business.
As you plan your estate, you may have a family member who will take over your business but another who will not that you want to provide with an equal amount of inheritance.
Finally, cash value life insurance policies, such as universal life or whole life, can be used to store cash in a tax-efficient manner safely.
When owning the coverage personally, the policy protects this value from creditors and lawsuits. This way, if anything happens where you get into a bind, you have cash available that you can get your hands on. If nothing bad happens and you have accumulated money in the policy, this money can be used to create a tax-free income stream in retirement.
"Key Employee" Life Insurance
Many small business owners depend on the efforts of other key employees. Key employee life insurance helps protect the business if a key person dies.
Just as a business would face many difficulties if the owner dies, the loss of a key employee because of an untimely death can be equally as hard.
Life insurance owned by the business on the lives of key employees will provide money to help a business deal with the transition of losing that key individual. Learn More About Key Employee Life Insurance Here.
To Fund Buy-Sell Agreements
Buy-sell agreements are contracts business partners create to plan for the possibility that one of them may die, become disabled, or want to retire from the business.
Both whole life and universal life allow the owners to accumulate assets on a tax-deferred basis leveraging the premiums to provide a death benefit which will provide instant funds to buy out a partner’s estate if they die inexpediently. The income tax-free life insurance death benefit proceeds is the most efficient solution to create that cash when it is needed.
Learn More About Buy-Sell Agreements
Non-Qualified Compensation Benefits
Key employees may leave an organization for a number of reasons. Sometimes, it is just because they do not feel the company values their service. Other times it might be because a competitor offers them more compensation.
Life insurance can be used to structure non-qualified retirement and other compensation plans that are used to attract, reward and retain key employees of an organization. Learn More About Non-Qualified Retirement Plans
Life insurance as collateral for a loan
Lenders want to make sure they get paid back what they lend out. Many banks and private lenders require the borrower to take out a life insurance policy with which they will place a collateral assignment against the death benefit.
Only the loan balance goes to the lender if the insured dies. Any remaining death benefit passes to the policies named beneficiaries.
Group benefit Life Insurance Plans
As part of a group benefits plan, offering group life insurance to all employees is a tax-efficient way to compensate them while giving them life insurance coverage they otherwise may not have.
The premiums a small business pays are 100% tax deductible and the death benefit settlement the employees beneficiaries receive if they pass away are 100% income tax free. Learn More About Group Benefits Here.
There are many uses of life insurance to protect a small business. Our mission is to help you understand and structure them to help your business be in the best possible position to be both profitable today and succeed long term.
How Decision Tree Financial Can Help Savvy Business Owners Determine Their Best Life Insurance Strategy...
Life insurance is just One Part of a business owners financial needs. There are other risk management considerations, tax reduction strategies and sales that all impact your bottom line.
The Wealth Manifestation Process will help you understand how all parts of your financial life work together so that it is coordinated, efficient, and easy to understand.
