Business Owner Insurance
Successful business owners use life insurance as a means of protecting their business, as a business succession financial tool, and as a way to accumulate future retirement income. Using life insurance, business owners can ensure that funds will be available to provide flexibility for different types of scenarios that can affect the business, such as: the loss of a key employee, the death or disability of the business owner, the need for loan collateral, and potential tax liabilities. Common uses of Business Owner Insurance:
- Key Man Insurance: In many small businesses, the business owner is the company’s key employee. As such, life insurance can be purchased on the life of the business owner to protect the company in the case of an untimely death. The proceeds from the life insurance can be used to hire a replacement, pay debts, or contribute to an orderly liquidation of the business.
- Loan Collateral: Loans are critical to the expansion and growth of small businesses. A commonly used collateral for loans is a life insurance policy on the business owner. When buying life insurance to secure a loan, the company owns the policy, pays the premiums, and is the named beneficiary of the policy.
- Buy-Sell agreement funding: A buy-sell agreement is a legally binding contract, which states that at an owner’s or partner’s death, disability, or retirement; the owner’s interest in the business must first be offered to the remaining owners at agreed upon terms.
- Estate Planning: In many cases, the majority of a business owner’s estate is tied up in the value of the business. Without an effective estate plan, including a business succession plan, the business may need to be sold or liquidated in order to pay estate taxes. Using life insurance, business owners can make sure that at their passing, the policy proceeds are payable to the estate; which can then be used to pay any applicable estate taxes on the business.