Life Insurance for Business is just a specialized type of this insurance. Just like Home or Car Insurance, Life Insurance is an extremely versatile form of coverage.
Life insurance for business can be used to:
- keep a valuable employee (designate that the policy you paid for will be his if he stays on,)
- pay the company for the loss of a valuable employee (called key person coverage)
- buy out a partner’s spouse if he dies
- have the corporation buy back an owner’s stock and other things.
It can be extremely useful if an agent is knowledgeable and has a competent legal and tax team behind him.
Life Risk Factors
All life insurance policies are underwritten, which means that risk factors are taken into account. These can be obesity, smoking, hypertension, diabetes, medications taken, cholesterol level, lifestyle choices such as motorcycle racing, and so on. The rates reflect those factors and can be significant. For example, we just quoted a term policy with and without smokers rating. The non-smoker premium quote was one-third the amount for the smoker rating.
Sometimes the risk factors are too high to qualify an applicant for any sort of coverage. I have had marijuana smokers, at-risk HIV applicants, obese people, and heart disease applicants denied. A smart agent will know which insurance companies have the most lenient underwriting rules for a given medical issue.
Here is a caveat, though. Suppose you would like to game the system, and you misrepresent a material fact on an application. When it comes time for a claim to be paid, the contract becomes null and void. All your premiums will be returned, and no benefits will be paid out. This goes for all insurance policies, but in particular, life insurance.
Retirement from a Business
Most business owners think of retiring from the business at some point. They have worked very hard to get the business to the point where it now is, and it’s time to kick back a little and work on the golf game.
How do you get out of your business when it’s time?
Let’s say you have been in business for some time, and your family does not want to run the business when you are out. Or suppose you want to sell the business to an employee. However, the big problem is, though, that employees may not be able to pay when it’s time to pay. What to do?
With a correctly structured program, you could plan the buyout and the financing and at the same time provide an incentive for her to stay on until that day when she takes over. You could even make it tax-deductible. Believe it or not, business life insurance could come to the rescue.
You could, for example, structure a life insurance program in such a way that any savings within the policy could be available to purchase the business at some point, or at least offer a sufficient down payment to get it going. There are options as to ownership and payment, and of course, tax benefits.
Life insurance, disability insurance, and annuities are vehicles that allow for some very creative ways of protecting an existing business, keeping an employee of value, planning for a future sale, rewarding an employee of value, and other things. The capabilities change along with the changes in existing tax laws, so advantages come and go with time. Further exploration with a life insurance agent who has an available legal department is critical. Most life insurance agents are not prepared to have this discussion, as they are focused on family protection life insurance. This type of coverage is as different as night is to day and requires a special subset of skills and training as an agent.
Here is another scenario. Imagine a partner, a stockholder on a small company, or a managing member in an LLC dies. Life insurance is the vehicle.
Concluding
Life Insurance is an extremely versatile form of coverage. Compare life insurance quotes from affordable companies like Aflac Insurance and get with the right provider to be able to solve a myriad of problems.
