Professional Insurance Blog

When most people think about life insurance, they picture leaving money to family members. As a business owner, you also have to consider the future of your company.

Although you might not realize it at first glance, your company is essentially another child to be taken care of when doing estate planning. In many ways, it is a living, breathing thing. Just as you want to leave money to your family to take care of their well being, the same needs to happen for your business. Buying life insurance as part of your business succession plan is the optimal strategy.

Most businesses are small and family owned. In practical terms, this means one person or perhaps two started the business, learned the ropes and turned it into a profitable venture. This person or persons is critical to the continuing success of the venture. Ah, but what happens when the individuals in question are no longer around? Without proper planning, the typical answer is total chaos. In worse case scenarios, the business may actually shut down because of an inability to meet financial obligations including estate tax liability demanded by the IRS and your local state tax agency.

Life insurance policies provide critical cash for the continuation of a business on the passing of a key business executive. In a small business, this is usually the owner. When this person passes, loan obligations can come due immediately and taxes can be massive. The proceeds from a life insurance policy can be used to meet these obligations and provide a pool of cash to continue the business. This can make all the difference between a business surviving and failing.

Life insurance policies can also be used to address the ownership transfer of the business. When a business owner passes away, the ownership of the company obviously must be transferred to someone. This transfer should be detailed in a succession plan prior to the grim event. If you don’t have one, get one now!

The transfer of ownership can happen in a number of ways. Many businesses use a buy-sell agreement to layout who the transfer will be made to and who will be bought out, if anyone. The buyout is often funded from proceeds from the life insurance policy. This allows the business to keep functioning seamlessly while also taking care of the people designated by the original owner.

Passing away and life insurance are two topics most people are not particularly interested in dealing with. This is understandable, but failing to do so can lead to a business disaster. You worked hard to make that business successful. Don’t throw it all away by failing to plan for the future.

Learn more about succession planning at UFCAmerica.com