Life Insurance for Business Owners and Estate Planning
Business owners, whether big or small, often find life insurance to work as an essential part of their overall business strategy. It is very important, therefore, that entrepreneurs, business partners and business owners have a basic understanding of the different types of life insurance and how can it be beneficial for them.
To learn more about life insurance for business and estate planning purposes and to request your term life insurance quote, contact us today. In addition, all clients of Advisors Insurance Direct are entitled to a complimentary financial review so please don’t hesitate to inquire through your advisor.
Different Forms of Life Insurance and Their Significance to Business Owners
- Key Man Life Insurance
The key man in a business refers to the business owner and any person who plays a critical role in the overall business operation and whose contribution helps to bring revenue and profit to the organization. The passing away of a key person in business will create a void that may take time to fill. This may result in a loss of clients, severance of business connections, and other unwanted effects. Without an immediate successor, a business can fail simply with the death of an owner, partner or other crucial employee.
A key man life insurance policy will provide much needed capital to a business operation in case of the untimely demise of its owner or of a vital leader in the company. It provides the necessary funds to maintain stability until a suitable replacement is found. It can also be used to buy precious time to keep the business in order in preparation for its eventual sale. Key man life insurance is bought in the name of the business owner, the premium is paid by the business, and the beneficiary is the business itself.
- Life Insurance and Buy-Sell Agreement
Business owners or partners can enter into a buy-sell agreement in order to keep the business operation running in the event that one of the owners dies or separates from the company due to disability, retirement, or other reasons. This is a legally binding arrangement that allows the company to purchase the shares or interest of the deceased member from their family or heirs, giving them what they really want, the value of their loved ones ownership interest in their company or firm. This agreement is typically funded through life insurance or disability insurance.
- Life Insurance and Loan Collateral
A business owner with an expanding or growing business may, at one point, need to secure a business loan. These borrowed funds are typically used to expand and improve on their company or firm. Various lending institutions, like banks, require a life insurance policy as collateral from the business owner to protect the money they loaned. While the purpose of getting insurance is to pay off business loans, the company still retains ownership of the insurance and remains its beneficiary.
- Life Insurance and Estate Planning
Using life insurance as a safeguard for paying estate taxes is an intelligent decision made by many business owners and wealthy families. Without the life insurance, heirs and beneficiaries will carry the burden of paying the estate taxes after death of the account holder with current estate assets rather than the cash provided by the insurance proceeds. Not using insurance may eventually lead to the selling of the business, or other family assets, to pay the taxes. These heirs are often at the losing end of the transaction because they have to liquidate the company and these other family holdings at a much lower value than they are truly worth, and then pay the estate tax from the proceeds of the sale. With a life insurance policy, the family and heirs of the deceased can be fully protected.
Contact Us Today to Learn More About Life Insurance for Business and Estate Planning
The information provided here merely scratches the surface of how life insurance can be used for businesses. To learn more about this information and how you can use life insurance to ensure the financial future of your business, contact the advisors at Advisors Insurance Direct today. We have a staff of well trained, educated, and licensed insurance professionals that will help you navigate the twists and turns of life insurance. To learn more and for your term life insurance quote, contact us today.
As financial professionals, we will never pressure you to do anything or use silly sales tactics. We are simply here to answer your questions, provide professional advice and walk you through the process of buying life insurance should you decide to move forward.