Maintaining Life Insurance for Security and Financial Flexibility
Life insurance is designed to protect an individual against death by ensuring that a beneficiary will receive money upon the individual’s death. Everyone can benefit from life insurance. Starting a business impacts on the type of life insurance a person should have for their family. As a business owner, your needs are going to be different than a person who works a regular 9-to-5 job.
Protect the Future of Your Business
Term or permanent life insurance policies can provide another kind of important benefit to business partnerships: helping you and your partners plan for the future of your business.
Term life insurance pays a benefit in the event of the death of the insured during a specified term.
Some of the biggest financial concerns facing businesses can be ameliorated by life insurance. According to financial advisor Kim Butler, most companies have five key financial concerns:
- Planning for the future
- Tax minimization
- Cash flow management
- Financing capital expenditures
- Providing employee benefits
To plan for the future, small businesses in particular need a succession plan. Life insurance can fund a buyout agreement. Business owners could agree to take out a life insurance policy on the other person, in order to ensure that if one partner dies, the other can afford to buy them out.
Key employee policies also ensure a company protects their investments in one of their best assets: top employees. In the event of the key employee’s death, the company would receive two or three times the amount of the employee’s salary.
Life insurance can also be used as an estate balancing tool for people who have several adult children with varying degrees of involvement in the family business.
Insurance is another way to minimize a company’s tax burden. The government does not tax the growth of life insurance cash value. Since cash value accounts grow tax-free while within the policy, cash values can be accessed without taxation.
Cash flow management is easier if the business has made good use of life insurance. Small businesses tend to operate with as little overhead as possible. However, this does not obviate the need for access to emergency cash. Since saving money is difficult, life insurance provides companies another way to access money by borrowing against the cash value of the policy.
In addition to borrowing against the value of the policy, merely having a policy makes the business more creditworthy, which makes it easier to obtain funding from other sources.
Small business owners have found it easier to obtain life insurance loans to finance major equipment acquisition. This is especially true for farmers and others who may pay high rates for equipment loans. Life insurance loan interest amounts are not only lower, but the borrowing process is much simpler.
Keeping the best employees is difficult. In a competitive environment, employers usually can offer benefit packages to make employment more attractive. Insurance is one more way to keep employees. Life insurance can be used to offer deferred compensation to qualified employees. Non-qualified deferred compensation plans are also flexible benefits, since they use contributions by employees. Specialized life insurance also can be offered as a retirement benefit.