Life Insurance Overview

Congratulations! Being a business owner can be exhilarating beyond words. The risks are great, there are no guarantees, but the rewards can be enormous. Of the handful of households with a net worth in excess of $1 million, the vast majority are headed by business owners who enjoy median household incomes of $463,000.¹
1. "The Millionaire Mind" by Thomas Stanley (Andrews McMeel Publishing, 2000).

If you have partners and or employees success depends on synergy and their specialized talents and abilities that are critical to the operation of your business. The loss of a key partner or key employee would be difficult or costly to replace. It is important to help retain key people by rewarding them for their efforts with benefits and at the same time, protect your business if they die.

If you, a partner or key employee dies the loss could also mean the death of your company as well.

• Make sure you have life insurance to protect your companies greatest asset . . . YOU.
• Set up your qualified retirement plan to guarantee your future.
• Insure your business against the death of your partners and key employees.
• Think about succession planning. Who will take your place or a partners place upon death or retirement?
• Think about Executive Benefits for you, your partners and non-owner employees are a way to reward quality work, save taxes, and remove assets from the business.

Personal Policy

As an entrepreneur the risks and rewards of owning your own business are great. If you are a sole proprietor ask yourself the following questions:

If I were to die today, could my business survive on its own? Could my business generate an income without me? Would my spouse and or family be prepared to run my business? If not, could my business run itself and provide enough income for my family until it were sold? How much would my business be worth without me?

Life Insurance is a pre-requisite for those who want to protect their family and business from the financial devastation that often accompanies the loss of life.

Key Person Life Insurance

Key Person Life Insurance is designed to help protect a business from financial losses that can occur when a key employee dies.  The key employee could be the owner of the business or a non-owner employee whose very specialized abilities are critical to the operation of the business and difficult or costly to replace.  The life insurance proceeds are paid to the business to help the business continue, offset reduced profits, help pay for a replacement upon the owner's or key employee's death, protect its credit position, provide a financial cushion, fund a partial stock redemption, or make survivor income payments.

Buy - Sell

A Buy-Sell agreement is a business plan funded by a life insurance policy to transfer ownership interests of a deceased business owner to the surviving co-owners to continue the business.  Each partner or stockholder is beneficiary of policy that party owns on the life of partner(s) or co-stockholders; proceeds are used to buy interest from the deceased owners estate.

Cross Purchase: transfers ownership to the surviving co-owners who continue the business. Each partner or stockholder pays premiums for the policy on the life of the partner(s) or stockholder(s).Each partner(s) or stockholder(s) owns the policy on the life of the partner(s) or co-stockholder(s).  Each partner or stockholder is the beneficiary of a policy that party owns on the life of partner(s) or co-stockholder(s); proceeds are used to buy interest from the deceased owner's estate.

Stock or Entity Purchase: the business purchases the deceased's interest.  The business is the beneficiary.  Business proceeds are used to buy interest from the owner's estate.

Partial Stock Redemption Under Section 303 of the Internal Revenue Code: transfers ownership of a close corporation to heirs but also converts some shares to cash for estate clearance costs.  The Corporation is the beneficiary.  Proceeds are used to purchase stock from the deceased stockholder in the amount limited to estate settlement costs.

Guaranteed Issue Whole Life Insurance for 50 + Lives

Designed for multi-life executive benefits.  The minimum face amount is $50,000; the maximum face amount is $2,000,000. Guaranteed Issue Whole Life is perfectly suited for split dollar, executive bonus, SERP's and non-qualified deferred compensation plans. Its high cash values which begin in the first year make it ideally suited to minimize the plan's cost on the balance sheet.

Group Term Insurance Carve-Outs

The primary reason for the popularity of group term life insurance with employers is that it's viewed as a fairly inexpensive benefit. For the most part, it can be, especially if there are a number of younger, lower paid workers on the payroll. However, when the business includes its older, higher paid executives, including the owners themselves, the result can be costly.

As a business owner, you may want to consider what could be a more cost effective alternative: Group Carve-Out Insurance.   (more)

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