Business owners have a lot on their plates. In addition to running the day-to-day, they must consider long-term operations and how best to protect their assets. Misfortune can threaten any company, whether a sudden cash shortfall or losing a key member. Rather than leaving their success to chance, many entrepreneurs leverage life insurance to safeguard their futures. In addition to the death benefit, many permanent life policies, such as whole life and universal life insurance, have features that can help businesses better adapt to change.
Here are three scenarios in which life insurance could help support your business:
The loss of an owner is challenging for a business. Life insurance can help. A business can use death benefits to buy out the deceased owner's share of a company or pay off debts. The policy can even fund a buy-sell agreement that dictates how to transfer an owner's shares in the event of their death, helping to avoid red tape and costly legal disputes.
Protecting against the loss of key employees
The loss of an employee can hit a business hard, especially a key person who is highly specialized or crucial to operations and sales. Replacing a key person may be difficult and expensive. Businesses can lessen the risks by taking out life insurance policies on employees. Death benefits help alleviate the hardship of losing essential personnel, offering companies the resources and flexibility to persevere.
Sourcing cash flow through a loan
Life insurance can be an attractive option for securing a loan to support the business. Many permanent life insurance policies have a cash value that accumulates over the life of the policy, as you continue to pay premiums. A policyholder can borrow against the cash value to expand the business, increase cash flow, buy new equipment, and more. Policyholders can take a loan out for any reason, which can mean the difference between sinking or swimming, especially when unexpected expenses arise or during periods of economic downturn.
Peace of mind
Life insurance is an important tool for businesses of all sizes. Most business owners understand the need for insurance to protect against fire, theft, and liability risks. However, many companies overlook the need for life insurance, which can be just as important. Life insurance provides a financial safety net in the event of an owner's death or the death of key personnel and can even provide collateral to secure a loan. Experience the peace of mind that comes from being prepared and protected.
Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.
CAUTION: Loans taken against a life insurance policy can have adverse effects if not managed properly. Policy loans and automatic premium loans, including any accrued interest, must be repaid in cash or from policy values upon surrender, lapse or the death of the insured. Repayment of loans from policy values upon surrender or lapse can trigger a potentially significant tax liability and there may be little or no cash value remaining in the policy to pay the tax. The policy will lapse if loans become equal to the cash value while the policy is in force and additional cash payments are not made.
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