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Business Life Insurance

Business life insurance can be a simple funding vehicle that is relatively easy to administer. The availability of death benefit from life insurance ensures that adequate liquidity will be available when an owner dies, thus avoiding a potentially adverse impact on working capital.  Without life insurance, the business or surviving owners may be contractually required to purchase the seller's interest at the seller's death, but lack the necessary liquidity.  Life insurance, particularly cash value life insurance, can provide the needed liquidity when it is required.

Many employers provide selective benefits to key employees to enhance the benefits normally available to employees. Life insurance can be valuable in providing these selective benefits.

Some examples of selective benefits to key employees are:

  • Bonus Plan
    Many employers offer benefits that they feel meet the needs of and help retain highly valued employees.  A bonus plan that incorporates employee-owned life insurance is one way an employer can tailor a death benefit to meet the needs of specific individuals.
  • Split Dollar Arrangement
    A benefit that has historically served key executives is the split-dollar arrangement.  Split-dollar is not a type of policy but, rather, a way to share the costs and benefits of a single life insurance policy.
  • Executive Compensation
    When an Employer decides to provide additional retirement or certain types of deferred compensation to key employees, life insurance is often used to informally fund the promised benefits.

Key Person Life Insurance

Key Person Life Insurance is life insurance that a business owns on its key employees to partially protect the business for the loss sustained upon their deaths.  During the life of the key person, the life insurance may strengthen the credit of the business and may provide cash for emergency needs.  Upon the key person's death, the life insurance may reinforce the capital structure of the business, may pay for the cost of training a replacement and may solidify lines of credit.

Collateral Assignment

Life insurance is an asset that can be valuable while the insured person is alive.  Most life insurance policies are assignable.  That means the policy owner can use his life insurance death benefit as security for a loan. If the policy owner dies with the loan still unpaid, the creditor holding the collateral assignment is paid off from the policy's proceeds.

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