Funding Buyout Agreements
In the case of partnerships, the death or disability of one partner can have a devastating effect on the survival of the business. Insurance can provide an excellent method of funding buyout agreements so that the remaining partner takes full control of the business and the surviving family is properly compensated.
For companies who wish to retain top employees, the shared ownership of a permanent insurance policy can be an attractive opportunity. It protects the company against the death of the employee and motivates that person to remain with the firm through the enticement of an attractive, low-cost retirement asset. This arrangement can create a win-win situation for everyone.
Minimizing Corporate Taxes
If corporate assets are invested in fixed income, then an insurance strategy can not only reduce its taxable income, but it will lower the value of the business by the amount of the investment, thereby reducing the inevitable capital gains tax liability.
Maximizing Corporate Assets
By taking advantage of tax-deferred growth inside a Universal Life or Whole Life policy, corporate assets can avoid accrual taxation and grow to a much greater value than if they were invested in a regular account. Not only that, but upon death, most, if not all, of the proceeds can be paid out of the corporation tax-free. Ordinarily they would be paid out as taxable dividends, requiring approximately one third of the value to be paid in taxes.
Executive Life Insurance Planning
Executive Life Insurance enables you to provide managers and executives with a supplementary benefit package. In this instance, both you and your executive purchase a tax-exempt life insurance policy with your executive names as the insured. Both of you will share the benefits. This form of insurance provides protection for an executive's family, while you benefit from an investment offering tax-deferred growth.
Business Succession Planning
A business succession plan can help protect your business when an owner-shareholder retires or passes away. Elements of a successful business succession plan include buy-sell agreements, a Will, and powers of attorney.
A buy-sell provision is a shareholder agreement that allows for the orderly transfer of shares in the event of disability, death, or retirement of a shareholder. Upon the death of a shareholder, the buy-sell agreement generally instructs the corporation to purchase the sharesof the deceased. Insurance is a cost-effective way of providing the necessary funds to carry out those instructions.
Many companies, public and private, large and small, often rely on the skills and contributions of a single person. Proficient with all levels of the firm's operations and respected by staff and trusted by clients, such key individuals play a curcial role in the company's success. The sudden departure of a key person can create a void that is difficult (if not near impossible) and costly to fill. Taking out life insurance on the key person, or people, in your organization can help mitigate these costs.