Life insurance can help your business in two main ways – executive benefits and succession planning.
As a business owner, you’ve spent significant time growing and nurturing your business. Here are a few ways that life insurance can be used to help reinforce your business succession plan by providing comprehensive benefits that can help mitigate unexpected losses and increase longevity.
Executive bonus plan
This type of executive benefit helps to attract, retain, reward and offer a sophisticated retirement to key employees. The employer covers the cost of the annual premiums through a series of income tax deductible “bonuses” for a permanent life insurance policy that is owned by a key employee.
Key person insurance
This coverage provides financial stability as your business recovers from the sudden loss of a key employee, such as an executive or someone critical to the life of the business. The employer is the owner and beneficiary of a life insurance policy that covers the life of the key executive, pays the entire premium and will receive the entire death benefit.
Nonqualified deferred compensation
For executives who have made the maximum contributions to their qualified plan, deferring compensation is a potentially attractive alternative to accumulating supplemental retirement income. The process requires the employer to serve as owner and beneficiary of the life insurance policy that covers the life of the executive, providing the business with control and flexibility and future income to the key employees.
Split-dollar plan
A split-dollar plan provides an attractive benefit for key employees that is less costly to them and more affordable for your business by sharing the benefits of a cash value life insurance policy. This plan is built on an arrangement whereby the employer agrees to assist a key employee in paying the premiums of a personal life insurance policy in exchange for the rights to share in the death proceeds and/or cash value potential of the policy.
Estate planning
Under the topical umbrella of estate planning sits succession and buy-sell planning, as well as managing your business as an asset in your personal estate. By keeping up-to-date estate planning documents (wills, trusts, power of attorney and healthcare proxies), you can help ensure that your family is provided for and that your legacy endures.
Buy-Sell agreements
These agreements help protect your financial security as well as your heir’s in the event of your death, disability or retirement. With a buy-sell agreement, you can establish the method for valuing your business and how it will be transferred or sold with little interruption for employees, customers and creditors.
Reach out to your financial advisor to discuss the resources available to plan for your current business needs and help safeguard the future of your business.
Insurance policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors, such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims-paying ability of the insurance company.
Long-term care insurance products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 1/2, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income.
