LIFE INSURANCE FOR BUSINESS

Premium Finance

Many astute investors neglect to diversify their financial assets, especially business owners. Many times, business owners pay themselves a paycheck, contribute money to their 401(k) (if one is offered), contribute to their IRA, receive distributions income that flow thru to their K1 and call it a day. All or most of their retirement savings is in mutual funds or marketable securities. Typically, one of the main assets in their portfolio is the value of their business but they don’t leverage this asset to create additional wealth. If the business owner personally guarantees business debts or loans, and the owner dies, the owner’s family could have to pay the debt or loan out of personal funds. A Premium Financed Cash Value Life Insurance policy death benefit would protect the business owner from their untimely death AND provide a separate bucket of retirement money while using a proprietary tax strategy to legally and ethically deduct the cost of the insurance from the business’s income statement.

Key Person Insurance

Very often, a small business depends on one or two key people to keep the business afloat. These are the people who manage the books, know all the customers, and make sure there’s always coffee in the jar. If they were to disappear from work one day, the business could fall apart without them. Ask yourself what would happen if any employee stopped coming to work? If the answer is “A disaster,” then you need key employee insurance for that person. Key person insurance, also known as key employee insurance, helps protect your small business in case the owner or other key employee dies.

Deferred Compensation

For many executives, the opportunity to gain an equity position -- to own some or all of the business -- is much sought after. Conversely, owners of closely held corporations often choose to limit ownership to a very few individuals and, if stock shares are granted, to limit those shares to a small minority ownership. This tends to keep control of the entity in the hands of current owners.

For this reason, businesses are turning more frequently to nonqualified deferred compensation as an alternative to granting a key executive an ownership interest in the company. The plan is completely selective and may meet both the financial and psychological needs of the executive.

Ensuring Successor Owners of an Experienced Management Team

Family businesses often remain in the family provided there is sufficient capital along with a family member interested in managing the business when the current owner steps down. But what happens when there are minor children who may eventually have an interest in working in the family business but who have years of education ahead of them before that can occur?

The answer may lie in ensuring the continuation of an experienced management team to run the business during that interim period. The question, of course, is how to ensure the team's continuation.

Nonqualified deferred compensation (NQDC) plans can help business owners use cash value life insurance as a substitute for an ownership stake while attracting and keeping high-performing employees. You’ve taken the first step toward recruiting, rewarding, retaining and retiring key employees by implementing a nonqualified deferred compensation plan for them. There are unlimited vesting strategies that can be used to make key employees think twice about leaving your employment for another job or to start a competing entity.