Why Life Insurance?
Are you a small business owner or a co-owner/officer of a small business? If you are, you have a need to protect your current business and your future business. You also have your families you need to take care of; your family at work, and your family at home.
Whether you need executive life insurance or whole life insurance for business owners, we can help you find the perfect policy. There are many ways Life Insurance for small business owners can provide all the protections you need and may be looking for.
FAQs
Executive Bonus Plan
Sometimes referred to as a Section 162 plan, an Executive Bonus Plan is a non-qualified executive insurance plan used by an employer to provide extra compensation to key executives. The business pays a tax-deductible bonus which the employee uses to pay the premiums for a personally owned life insurance policy.
This bonus is taxable income to the employee. The employee may have access to policy cash values and ultimately the beneficiary designated by the employee will receive the tax-free death proceeds.
Considering an Executive Bonus Plan? Here are some Key Tips!
Executive Bonus Plan – Pros for the Employer:
- The plan provides the executive with post-retirement benefits. The life insurance policy stays in force and access to cash value after the executive has retired or left the company.
- Unlike other non-qualified plans, the employer's premium payments are tax-deductible as compensation.
- Plans are easy to administer as premiums are paid as salary payments for accounting purposes. In addition, there are typically no government reporting or disclosure requirements with which the plan must comply.
Executive Bonus Plan – Pros for the Executive:
- The executive life insurance plan provides the executive with post-retirement benefits. The executive insurance policy stays in force and access to cash value after the executive has retired or left the company.
- The plan is portable for the executive. Although the company will cease to make payments at the separation of employment, the executive may elect to continue the plan.
- The executive uses company funds to pay for personal life insurance that will benefit his/her family in the case of unplanned loss of life.
Executive Bonus Plan – Cons for the Employer:
- Since the executive owns the plan the employer has no control over the policy or its values.
- Inability to recover any cost associated with the plan when the employee leaves.
Executive Bonus Plan – Cons for the Employees:
- The amount bonused into the plan is considered income. However, many plans will also pay the taxes deeming the plan as a double-bonus executive bonus plan, thus eliminating this disadvantage.
Flow Chart of a Section 162 Restricted Executive Bonus Plan
Restrictions on Access to Policy Values
- Executives may access policy cash values only after a certain number of years has passed or a specific event has occurred (such as attaining normal retirement age) as provided in the restricted bonus agreement between the parties.
- There is no restriction on payment of death proceeds to the Executive's beneficiaries.
Key Person Life Insurance
Most businesses have owners, executives, or officers that play a key role in the success, sustainability, and profitability of the company.
Should a key person die, you immediately lose all the skills and talents that were so vital to the company. You will need to recover quickly – very quickly. Even for small business owners, life insurance will help you do just that.
The company can buy and own a Life insurance policy for everyone deemed a key person. The company pays the premiums and as the beneficiary, receives the tax-free death benefit should a key employee die.
This cash benefit can perhaps help offset lost sales and earnings, but more importantly, allow the company to quickly find and train a proper replacement. Without these funds to allow for quick action, the company could suffer irreparable harm and damage, and may never recover.
Four key benefits of having key person life insurance:
- Maintain Revenue –
When the person who is missing is a big contributor to sales and/or cash flow, the key person insurance will help to make sure sufficient funds are available until revenue can be replaced. Even though creditors and suppliers will be sympathetic to your hardship, they too have businesses to run and so cannot afford to miss out on payment. - Protect Your Assets –
Companies often have mortgages on real estate and obligations to pay. The person who is missing is often a key person responsible for sales and revenue. This will be a concern to any creditor or lender, and key person insurance means that you have the foresight for this kind of situation. - Cash Flow –
If there is an interruption to the flow of funds due to the loss of a key person, it can result in a loss of market shares, a decline in sales, and an unexpected loss. The proceeds from the insurance can help to fill the gap. - Protect Existing Equity Owners –
Oftentimes, the key person is also an owner of the business, and their family will inherit his or her business assets. Insurance owned by the company can help to pay business obligations to the family.
Owning a business is a risky endeavor and one that is best to be well prepared for. Take the time to find out more about key person insurance today and stay protected.
Executive Long Term Care Insurance
Most business owners provide an executive benefits package to attract, retain, and reward important team members. A popular benefit often included is Long Term Care Insurance.
Employers are allowed to select who gets this benefit and will often pay 100% of the premium. Premiums are tax-deductible for the business and benefits are tax-free to the executive. Each LTC policy is different, but in general, long term care insurance can help pay for:
- Adult Day Programs
- Respite Care
- Assisted Living
- Nursing Home or Specialized Dementia Care
- Hospice Services
Other things your long term care policy may cover include training for a family member who will be your caregiver and home modifications like wheelchair ramps. Each policy has a daily benefit amount, and most set a limit on the number of years that you can claim benefits.
There are lifetime-benefit policies, which cost more than term-limited coverage. Because senior-care costs are rising faster than the rate of inflation, you may want to buy a policy that offers inflation protection. An experienced insurance broker can be very helpful in putting such a plan together.
Think About This
It may be a pretty depressing thought, for sure, but we are all going to die one day. Unfortunately, none of us can say how or when we will die. That’s why it is a good idea to purchase long term care insurance. This specialized form of insurance covers the cost of health care that extends long beyond a typical hospital stay.
On the surface, buying long term care insurance doesn’t seem to have much to do with saving for retirement. Remember, however, that smart saving also involves spending at times. With long term care insurance, you are actually buying a policy that protects your retirement savings.
Having to spend your retirement nest egg on long term care – which can easily reach into the tens and even hundreds of thousands of dollars, depending on the quality and length of care – is not what you have been saving up for throughout your career.
Buy-Sell Agreements
When the owner or partner in a business dies, the business must shift into survival mode and adjust quickly and effectively, or the business itself may be in peril. A buy-sell agreement funded by Life insurance can protect you and the company from the unexpected or unintended transfer in ownership.
The sale and/or purchase of the company shares are usually based on specific events like death, disability, or retirement. The agreement can lay out who buys, who sells, when and for how much.
There are lifetime-benefit policies, which cost more than term-limited coverage. Because senior-care costs are rising faster than the rate of inflation, you may want to buy a policy that offers inflation protection. An experienced insurance broker can be very helpful in putting such a plan together.
Are you a business owner? Here are 5 key reasons why you should have a buy-sell agreement in place:
Control
Do you currently have the peace of mind knowing that you've put the right tools into place to ensure the success of your business after you're gone? With a buy-sell agreement, you can now have that peace of mind.
Guaranteed Buyer
With advanced planning you'll now have the certainty that the buyer is in place and there won't be questions about getting the funding secured.
Predetermined Price
With a predetermined price, you can eliminate the stress that comes from negotiations.
Tax Relief
If the death benefit is equal to the value of the deceased’s portion of the business, there is no taxable gain for federal income tax purposes. And, if certain requirements are met, the predetermined price in the buy-sell agreement will fix the value of the business for federal estate tax.
Treat Non-Business Family Members Fairly
Having the details hammered out ahead of time ensures your family is taken care of and not put in a compromising position.
Buy Sell Agreements
How Buy-Sell Agreements Work
Collateral Assignment / Premium Financing
When the owner or partner in a business dies, the business must shift into survival mode and adjust quickly and effectively, or the business itself may be in peril. A buy-sell agreement funded by Life insurance can protect you and the company from the unexpected or unintended transfer in ownership. The sale and/or purchase of the company shares are usually based on specific events like death, disability, or retirement. The agreement can lay out who buys, who sells, when and for how much.
There are lifetime-benefit policies, which cost more than term-limited coverage. Because senior-care costs are rising faster than the rate of inflation, you may want to buy a policy that offers inflation protection. An experienced insurance broker can be very helpful in putting such a plan together.
Are you a business owner? Here are 5 key reasons why you should have a buy-sell agreement in place:
Control
Do you currently have the peace of mind knowing that you've put the right tools into place to ensure the success of your business after you're gone? With a buy-sell agreement, you can now have that peace of mind.
Guaranteed Buyer
With advanced planning you'll now have the certainty that the buyer is in place, and there won't be questions about getting the funding secured.
Predetermined Price
With a predetermined price, you can eliminate the stress that comes from negotiations.
Tax Relief
If the death benefit is equal to the value of the deceased’s portion of the business, there is no taxable gain for federal income tax purposes. And, if certain requirements are met, the predetermined price in the buy-sell agreement will fix the value of the business for federal estate tax.
Treat Non-Business Family Members Fairly
Having the details hammered out ahead of time ensures your family is taken care of and not put in a compromising position.
Succession Planning
Life insurance is the key component of succession planning which requires that all owners/partners be adequately insured based on a formal valuation of the company which must be updated periodically as the company grows. To put a plan in place will require that you work with the following expert resources to assure you have the best possible succession plan in place: Attorney – CPA – Life Insurance Broker.
There are lifetime-benefit policies, which cost more than term-limited coverage. Because senior-care costs are rising faster than the rate of inflation, you may want to buy a policy that offers inflation protection. An experienced insurance broker can be very helpful in putting such a plan together.
Considering Succession Planning?
Here are 5 Key Questions you Will Need to Evaluate:
What is your goal with succession planning? Cash in? Take some chips off the table? Stay active in the company for a certain period?
Or have you’ve already chosen your successor, and now you’re considering ways to structure and fund the succession?
Is a buy-sell agreement that accounts for death, disability, and retirement in existence? If so, is it signed? Has it been reviewed? Is it fully funded?
Are there insurance policies in place to meet the requirements of the buy-sell, and if so, when were they last reviewed?
Are there any pressing reasons to implement succession sooner rather than later - e.g., health, family, divorce, or money issues? Also, is there at least an 18-month runway available?
For succession planning, are you open to external succession, or are you looking internally only?
One Last Thing
Life insurance for executives is the key component to succession planning which requires that all owners/partners be adequately insured based on a formal valuation of the company which must be updated periodically as the company grows. To put a plan in place will require that you work with the following expert resources to assure you have the best possible succession plan in place: Attorney – CPA – Life Insurance Broker.
There are lifetime-benefit policies, which cost more than term-limited coverage. Because senior-care costs are rising faster than the rate of inflation, you may want to buy a policy that offers inflation protection. An experienced small business and executive insurance broker can be very helpful in putting such a plan together.
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