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Life Insurance A Tool for Businesses

| October 04, 2018
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Life insurance is an important component of many business arrangements. While most business owners are familiar with life insurance as an employee benefit, many may not be aware of the variety of other potential business uses. Here are some of the more common ways you can use life insurance to help benefit and solidify your business: 

Funding buy-sell agreements. Under a typical buy-sell agreement, business partners agree to purchase each other’s interest if one of them dies. Life insurance can be a cost-effective method of funding this type of agreement, as long as you and your partners are insurable. The death benefit of a life insurance policy ensures that the surviving owner(s) will have a source of liquidity to buy out a deceased owner’s share of the business. 

Providing an employee benefit. Life insurance is a basic component of many employee benefit packages. One example is a traditional employee group term plan, which generally covers most employees. You can also use life insurance to enhance the benefits of select (or key) employees who are vital to the success of your business. In many instances, this death benefit coverage can be provided at little cost to the key employee. 

Insuring key employees. The death of a key employee can create a number of financial challenges for a business. Revenue may be affected; customers may need assurance that business operations will continue; and a replacement must be recruited and trained. Key person life insurance can provide funds to help meet these needs without jeopardizing your business operations or interfering with cash flow. 

Collateralizing business loans. Owners of new or growing businesses may have difficulty obtaining business loans. Lenders need to be assured that loans will be repaid, even if the owner dies unexpectedly. Business credit life insurance may make it easier to obtain financing by guaranteeing repayment with the proceeds from a life insurance policy. 

Life insurance can be an appropriate vehicle for important business purposes, such as business succession, employee benefits, and financing, but it is important to be aware of any tax consequences. When considering the use of life insurance for your business, careful planning with the help of your professional advisors is essential.

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