As a business owner, there are a number of ways that you can use life insurance in both personal and business financial planning. This important tool can actually play a substantial role in the overall stability of your company itself.
You’ve put countless hours into your business. It’s your lifeblood. If something tragic were to happen to you, your business would suffer as well as your family. Having proper insurance is a great way to protect your business, regardless of what happens to you.
First, life insurance policy proceeds can protect a company against the unexpected loss of its owner (or a key executive). These funds can also help to keep a business afloat during such a loss while the company seeks a replacement or until the business finds a suitable purchaser.
Setting Up Life Insurance Business Protection Plans
When setting up business protection arrangements using life insurance, there are several ways in which they can be structured. Three key plans that are often used by business owners include buy / sell agreements, cross purchase plans, and the purchase of key person life insurance.
Buy / Sell Agreements
A buy / sell agreement is a contract between two or more owners of a business. When there are two or more owners of a company, the sudden passing of one owner could essentially devastate the company and quickly send it out of business. For this reason, the owners should set up a buy / sell agreement using life insurance as the funding mechanism.
Here, each of the business owners purchases a life insurance policy on the other. Then, should one of the business owners die, the proceeds from his or her life insurance policy can provide the funds that will be needed for purchasing the deceased owner’s portion of the company.
Depending on how the business is owned, the proceeds could also be paid to the deceased owner’s survivors for paying the decedent’s final expenses, as well as for the survivors’ ongoing living expenses, as they will no longer have the deceased owner’s income from the business.
Cross Purchase Agreements
One particular type of buy / sell agreement is the cross purchase agreement. These arrangements are typically used when there are more than two partners who own a company. With this type of arrangement, each of the partners will purchase a life insurance policy on all of the others, naming all of the other partners as policy beneficiaries as well.
In this case, it is the individual business partners who are the parties to the agreement and not the company or corporation. Likewise, it is the partners who also pay the premiums. In addition, each of the partners will pay such premiums, and have a percentage of beneficiary designation, that is in the same proportion to their percentage of ownership in the company.
Key Person Life Insurance
Key person life insurance is another type of coverage that is oftentimes used with protection of a business. This coverage can help in protecting a business should a key employee pass away unexpectedly. When this occurs, a company typically stands to lose customers, and in turn, revenue, fairly quickly in some instances.
Therefore, if the company purchases a life insurance policy on the key employee, the proceeds of the policy can be paid out to the company in order to compensate for this lost income. Additional amounts of coverage may be added in order to cover the cost of locating, hiring, and training a replacement for the key employee who was lost.
In certain cases, the insurance policy will include a provision that allows the business to change the insured individual, without the need to cancel the existing life insurance plan should there be a change in the company’s employees.
Considerations When Purchasing Business Life Insurance
It is important to keep in mind that when purchasing business protection insurance, most policies should be permanent in nature rather than term. This is because the term life insurance policies will eventually expire, forcing the insured to re-qualify for coverage at a time in the future. Should the insured acquire an adverse health condition prior to that time, there is a chance that he or she could become uninsurable, and essentially no longer be eligible for the coverage, though there are other options that could be looked into with a higher premium rate, such as a no medical exam life insurance policy.
Before you purchase a no medical exam life insurance, there are several advantages and disadvantages that you should be aware of to ensure that you’re getting the best plan to fit your needs.
No Medical Exam
As you can guess from the name, these plans will allow you to purchase life insurance coverage (either for yourself or for a key person in your business), without having to take a medical exam. These plans are a great way to get insurance coverage for someone with several health complications or if they are in poor health. Everyone should be able to get life insurance coverage, regardless of your health.
Another advantage to no medical exam policies is that you can get life insurance protection much quicker than you can with a traditional life insurance policy. With a normal plan, you have to wait to schedule the medical exam, wait for the results, and then wait for the insurance company to review those results. Instead of having to wait up to a month to get life insurance, you can get it in a matter of days or even hours with a no medical exam plan. If you’re looking to get life insurance as quickly as possible, a no exam policy is the best way to do that.
Just like other types of plans, there are going to be disadvantages to these plans that can hinder the effectiveness of the policy. The most obvious disadvantage, as we mentioned earlier, is that these policies are going to be more expensive than a traditional life insurance plan that requires a medical exam. With a normal plan, the insurance company gets an idea of your health and how much of a risk you are to insure, with a no medical exam, they don’t get that picture, which means great risk. They are going to offset that risk by charging you higher premiums. If you need a list of the high risk life insurance carriers, we can help.
Another disadvantage that you should take note of, is that you will be limited on how much insurance protection that you can purchase without taking a medical exam. Some life insurance companies will cap you at $50,000 of coverage with a no medical exam plan. If your family or business needs more coverage than that, you’ll have to purchase additional no medical exam plans or apply for a traditional life insurance plan.
There are many reasons for business owners to consider purchasing life insurance. The primary purpose is to keep the company running after the loss of an owner or key employee. Companies can avoid many potential negative occurrences simply by placing life insurance on those who are important members of their staff. This type of planning should be an essential part of all companies’ financial and business operations.
If you have any questions about life insurance for your business or for your family, please contact one of our agents today. We would be happy to answer those questions and ensure that you’re getting the best plan to fit your needs. Our agents have years of experience working with various clients across the country. Unlike a traditional life insurance agent, we don’t only work with one company. Instead, we represent dozens of highly-rated companies across the nation.
Working with an independent insurance agent is the best way to ensure that you’ve got the lowest rates available. Instead of having to call dozens and dozens of insurance companies yourself, our agents can bring all of the best rates directly to you, no hassle. Additionally, we can help you compare all of the policies and find the one that works best for you and your business.
You never know what’s going to happen tomorrow, which means that you shouldn’t wait any longer to get the insurance protection that your business and your family deserves. If something tragic were to happen to you, it could cripple your business as well as burden your family. Your loved ones could be left with a massive amount of debt and final expenses, even debts from your business. It can make an already difficult situation a thousand times worse. If you are looking for the best final expense insurance policy or the best life insurance companies for seniors, let us help you in this process so you can get the coverage you deserve.