Asset Protection for Businesses

As we adjust to today’s challenges there is no better time than the present to sit down and revisit your succession and wealth transfer plans for your business.

Life insurance for business owners may be an important tool to help protect your current and future business interests. There are several situations where life insurance may assist you in creating a stable financial foundation.

Asset Protection for Businesses

As we adjust to today’s challenges there is no better time than the present to sit down and revisit your succession and wealth transfer plans for your business.

Life insurance for business owners may be an important tool to help protect your current and future business interests. There are several situations where life insurance may assist you in creating a stable financial foundation.

Let's look at some ways that life insurance may be used for business planning:

Obtaining life insurance using the cash value as collateral for a premium finance loan

This helps maintain your liquidity and protect the business and/or family in the event of your death. Should you wish to continue investing in your business, or perhaps buy a new business, maintaining liquidity is key. When the lender is named assignee of the death benefit on the life insurance policy, the premium finance loan for the insurance is paid back first and the remainder of the proceeds are payable to your beneficiary(s). IRSUS can assist with a premium finance loan through our companion company Insurative Premium Finance Massachusetts, Inc. (IPFM).

Obtaining life insurance using the cash value as collateral for a premium finance loan

This helps maintain your liquidity and protect the business and/or family in the event of your death. Should you wish to continue investing in your business, or perhaps buy a new business, maintaining liquidity is key. When the lender is named assignee of the death benefit on the life insurance policy, the premium finance loan for the insurance is paid back first and the remainder of the proceeds are payable to your beneficiary(s). IRSUS can assist with a premium finance loan through our companion company Insurative Premium Finance Massachusetts, Inc. (IPFM).

Key Person life insurance

Your company buys a life insurance policy on a key employee, owner or executive who is vital to the success of the business. The company applies for the policy, pays the premiums and also owns the policy. Additionally, the company would be the beneficiary of the policy, so that in the event of an unexpected death, the death benefit would be paid directly to the company. These tax-free funds could be used in many ways to support the success of the business. Expenses that might present themselves would be: finding a good replacement for the key person and training them or making up for lost sales and earnings during a transition. There may also be a need to buy out a deceased co-owner’s interest in the company and without key person insurance in place this process may be much more difficult.

Key Person life insurance

Your company buys a life insurance policy on a key employee, owner or executive who is vital to the success of the business. The company applies for the policy, pays the premiums and also owns the policy. Additionally, the company would be the beneficiary of the policy, so that in the event of an unexpected death, the death benefit would be paid directly to the company. These tax-free funds could be used in many ways to support the success of the business. Expenses that might present themselves would be: finding a good replacement for the key person and training them or making up for lost sales and earnings during a transition. There may also be a need to buy out a deceased co-owner’s interest in the company and without key person insurance in place this process may be much more difficult.

Buy-Sell Agreement

Should an owner or partner become disabled or die, the future of the business is uncertain. Owners and partners in business may avoid this uncertainty by putting in place a buy-sell agreement. To use life insurance with a buy-sell agreement the co-owners or shareholders buy life insurance policies on the lives of each partner, but not on themselves. If a partner or shareholder dies, the remaining partners receive a lump sum benefit. This payment makes it possible for the partners to buy out the deceased’s share of the business from the grieving family so that an unexpected or unintended transfer of ownership does not occur. In this way the buy-sell agreement benefits the remaining partners as well as the family of the deceased. Buy-sell agreements can also be set up to cover total permanent disabilities. Additionally buy-sell agreements are beneficial when dealing with creditors. Creditors should probably be more amenable to deal with, if they see that a well thought out buy-sell agreement is in place.

Buy-Sell Agreement

Should an owner or partner become disabled or die, the future of the business is uncertain. Owners and partners in business may avoid this uncertainty by putting in place a buy-sell agreement. To use life insurance with a buy-sell agreement the co-owners or shareholders buy life insurance policies on the lives of each partner, but not on themselves. If a partner or shareholder dies, the remaining partners receive a lump sum benefit. This payment makes it possible for the partners to buy out the deceased’s share of the business from the grieving family so that an unexpected or unintended transfer of ownership does not occur. In this way the buy-sell agreement benefits the remaining partners as well as the family of the deceased. Buy-sell agreements can also be set up to cover total permanent disabilities. Additionally buy-sell agreements are beneficial when dealing with creditors. Creditors should probably be more amenable to deal with, if they see that a well thought out buy-sell agreement is in place.

Life Insurance is an important tool in business succession planning. It is vital that you have adequate coverage for you and your business partners. A formal valuation of your company may assist in making sure you have enough coverage as the business grows.

When you are ready to begin succession planning, you should work with the following professionals – an attorney, CPA and life insurance broker.

Insurative Risk Solutions may assist in working with your other advisors to find the right insurance product for your needs.

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