Life insurance, whilst most typically associated with protecting a family’s long-term financial security, is also a versatile tool for businesses. The best term insurance plans can help businesses of all sizes plan for the future, reduce their taxes and more effectively manage their cash flow.
Savvy business owners are prepared for every eventuality, both at home and in the workplace. Life insurance policies help them do just that. They are the cornerstone of many business’s succession plans, helping diffuse conflict and ensuring businesses continue operations in the event of a death.
These are the five ways life insurance policies help business owners protect their business and secure their future financial stability.
1] Access to Capital
A percentage of every premium payment accumulates towards the policy’s cash value. As the business owner, this cash value can be leveraged to meet unexpected business expenses or expansion efforts. Businesses are then able to pay back the cash value in capital, making those funds available again later for any additional unexpected expenses.
In this way, life insurance policies can act as a source of cheap financial capital and save business owners from incurring interest fees from traditional lenders.
2] Protecting Your Greatest Assets
If you have expensive industrial machinery or lavish new buildings, it would be irresponsible to not insure them. But too many businesses do not insure their most valuable asset: their employees.
If your company’s top global salesperson, head chef, or chief financial officer suddenly died, how much money would your company lose overnight? These key employees are the lifeblood of the business and need protection.
3] Tax Free Capital Growth
The growth of the cash value of a life insurance policy is tax free. This is significant as it allows life insurance policies to amass an internal rate of return that exceeds many taxable investment portfolios growing at a similar rate.
4] Retirement Benefits
Many companies use life insurance policies to provide retirement benefits to their employees. Often, the company will help employees buy a life insurance policy in their nae, then pay the employee a ‘bonus’ equal to the premium payments and tax liabilities.
The employee is then left with a life insurance plan that will supplement their retirement funds or other expenses, and if the employee dies, the value of the policy is paid to the family tax free.
This can work out to be cheaper than other forms of retirement benefits and is increasingly being used by business owners as a valuable benefit tool to attract and keep top talent.
5] A Succession Plan
Life insurance policies also provide a clear succession plan for businesses in the event that one of the co-owners dies. In the event of an owner’s death, the remaining owners can use the death benefits to buy out the deceased owner’s share.
Life insurance can be a useful mechanism to ensure that the remaining owners will always have access to the necessary capital to buy out one owner’s share of the company and eliminate any prickly situations surrounding succession and the death of a co-owner.
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