What is Business Life Insurance Planning?
Business Life insurance planning provides a financial safety net that allows a business to grow or stay in business in the event of the death of an owner or key employee. This removes some of the worry from the business owners so they can focus on day-to-day issues of the business.
Is Business Life Insurance different than Personal Life Insurance?
The actual policies used for business planning needs are the same as personal planning needs. Term life insurance, whole life insurance or universal life insurance can all be used for business planning needs. A primary difference in business life insurance is how the policies are structured in relationship to the ownership and beneficiary of the policies. Typically business policies are set up to insure the owner(s) of the business or a key employee, therefore a legal written agreement is usually drawn up by an attorney to spell out the ownership and how the policy proceeds are to be distributed.
Is Business Life Insurance underwritten the same as Personal coverage?
Generally speaking life insurance for business owners or key employees is underwritten primarily the same as personal insurance coverage. They will generally require a medical exam and labs along with medical questionnaire to see if they are in special risks to consider when evaluating their request for coverage.
One difference is usually an underwriter will want to see more financial justification for the insurance protection. They may want a complete financial breakdown or worksheet for the business. This can include business assets, liabilities, market value, when business was started and current net profit. Typically, they will also want to know the current amount of protection already in force on any business owners or key employees.
Should I use Term Life or Permanent Life for Business Planning?
The plan of protection typically depends on the need and what you want your policy to provide. Many times a business owner will simply want to replace their income with life insurance. In order to maximize protection and have the lowest possible premium term life insurance would offer the best choice. A term policy would also work well for covering a business debt or personal loan.
If you need to have money available for possible estate taxes or to equalize an inheritance if all children are not involved in the business then a more permanent plan of protection like whole life or universal life would make sense. To fund a buy-sell agreement or provide capital if a key employee dies you could use either a term or permanent policy or a combination of the two.
How does a Permanent policy help in Business Planning?
Permanent life insurance policies more commonly known as whole life, universal life and equity-indexed universal life can offer some exciting options to business owners. A permanent policy allows a business owner to be creative in not only providing death benefit protection in case of an early death, but also in providing supplemental retirement benefits to the owner or key employee.
Cash values can grow on a tax-deferred basis inside of a permanent plan of protection. And if set up properly these values can be accessed on a tax-free basis at retirement. The cash value inside a permanent policy can be carried as an asset on the books of the company and provide an emergency fund or help pay the premium in a down year.
Unlike term life insurance that can expire at the end of the term, a permanent policy will typically continue forever as long as premiums are paid or enough cash value exists to carry the policy. This helps create a self-completing plan when death does occur.
Why is Business Life Insurance Planning so Important?
Everyone should prepare for the possibility of an untimely death. But, as a business owner you need to consider the financial impact of your death not only on your family, but also on your business and by extension the people who depend on your business for their livelihood. That’s why life insurance is an absolute necessity for business owners. Ask yourself the following questions:
- How would your company operations be affected by the loss of a founder or key employee/
- Would your business be able to continue in your absence?
- Would surviving partners and your family members be able to work in harmony?
- Would the business need to be sold and if so, how much would a sale realistically be able to command?
If you have a need for business life insurance planning and would like a quote or simply want to discuss your situation give us a call at 1-888-393-9003 or email Mike@specialriskterm.com
