Life Insurance – Business Needs

Key Employee

What would be the impact to the business if a key employee dies? How would operations and revenue be affected based on their service, client relationships, and vendor connections? How long might the negative impact last? Life insurance is often used to provide liquidity that can help the company during a transition period while a replacement is sought.

Buy-Sell Agreement

Who will inherit ownership in the business when a current owner dies? Is the successor an appropriate owner, or do they even want to be involved in the business? If not, an agreement to purchase their ownership may be appropriate. Life insurance is a common funding mechanism for these agreements and can help provide the cash needed to facilitate an ownership transfer. The amount of coverage is generally tied to the business’s value, with potential growth taken into account. Because these arrangements can be complex, they are typically structured with guidance from a qualified advisor.

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Employee/Executive Benefit

Some businesses use life insurance as part of incentive or retention strategies for employees and executives. Depending on the policy design, it may be structured to provide bonuses, deferred compensation, or other benefits. The tax treatment of these strategies depends on the policy type and applicable law. Because of the complexity, such arrangements are generally established with the assistance of a life insurance professional.