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Business Owned Life Insurance
A strategic tool for both safeguarding your company's finances and enhancing asset performance.
What is business owned life insurance?
As an business owner, you're presented with a choice regarding the ownership of your life insurance policy: it can be held either personally or by your business.
Opting for a business-owned policy brings with it notable tax benefits. This type of policy ensures a one-time, tax-exempt payout to your business in the event of the death of you, a business partner, or a key employee.
However, the scope of life insurance extends beyond mere business protection. It serves as a tool for asset diversification, potentially enhancing your financial strategy. Additionally, this policy may offer the opportunity to access its value, providing further financial flexibility.
Debt Clearance
Provides funds to clear business debts upon passing of an owner/employee, ensuring financial stability.
Buy-Out Preparation
Sets up a financial plan for partner buy-outs in case of death.
Asset Diversification
Offers potential for growth along with risk and tax management advantages.
What kind of life insurance are available for business?
There are 2 basic types of life insurance coverage for business owners: term and permanent. Each has unique features designed to meet different needs.
Permanent Life Insurance
- Lifetime coverage
- Higher cost
- Flexible payments
- Opportunity to build cash value
Term Life Insurance
- Temporary coverage
- Lower cost
- Fixed payments
- Option to convert to permanent
How do the types of life insurance compare?
An advisor can assist you in determining which is the most appropriate tool for your unique business circumstances.
- Protect your business from the death of a key person
- Cover business loans
- Protect your business from the death of a key person
- Cover business loans
- Access cash value for various business needs (expansion, investment, emergency)
- Fund a buyout agreement
- Business receives a tax-free one-time payment when you die
- Business receives a tax-free one-time payment when you die
- Build wealth inside your policy, tax-deferred, within limits, that you can access during your lifetime
Get help with your business life insurance planning.
Speak with a professional advisor who can help.
How much does life insurance cost?
Cost will depend on the type of coverage you choose. Generally, term insurance is more affordable than permanent insurance. But there are many factors that determine the cost of your policy, including:
Age
Generally, insurance cost less for younger age groups, and more for older age groups
Gender
Women live longer than men on average, so insurance may cost less than for males.
Health
Your unique health history, family history, chronic diseases and lifestyle can impact costs.
Occupation
High-risk occupations can increase cost. Conversely, low-risk occupations can reduce cost.
How much insurance coverage does your business need?
This will depend on your unique business need(s). Here are a few things to consider:
Key person value
Current and projected revenues
Future financial obligations
Your business debts & liabilities
Value of shares (for shareholder buyout)
A professional advisor can assist you with calculating your business insurance needs.
Get in touch
Talk to an advisor who can understand your situation, answer your questions and help you build an insurance plan appropriate for your business.
Frequently asked questions
Answers to key questions about Business-owned Life Insurance
Coverage should be considered for individuals whose death would significantly impact the company's financial health. This typically includes owners, founders, key executives, and employees with unique skills or knowledge crucial to the business.
The coverage amount should be based on the potential financial loss the business would suffer from the death of the insured individual. Consider factors like the individual's role in revenue generation, replacement costs, and the company's debts and future obligations.
Premiums are generally not tax-deductible, but the death benefit is usually received tax-free. Additionally, the cash value (if any) in permanent policies grows on a tax-deferred basis, and certain policies can offer tax-efficient ways to distribute funds to beneficiaries.
The business can choose to discontinue the policy, maintain it, or transfer it to the departing employee as a personal policy, subject to the terms of the insurance contract and any applicable laws
Yes, businesses can access the cash value of a permanent life insurance policy through withdrawals or loans, which can be used for business needs. However, this may reduce the death benefit and cash value of the policy.
Still have questions?
Please contact our office and we'll be happy to address any questions you may have.
