|
No matter how certain the future seems, there is always a need for a business succession plan. It's all too easy to give planning a miss when things are going well. But what happens when an unforeseen illness, a natural disaster, a premature death, or the sudden retirement of top management turns all your progress upside down? No one can plan for every type of disaster no matter how good you are at revenue projections or economic predictions. The reasons for having an efficient business succession plan are therefore manifold. With a number of contingency plans, you can ensure that your company stays afloat irrespective of whatever catastrophe occurs. Life insurance plays an important part in a business succession plan and can be easily integrated with many of the techniques and strategies often used in business succession planning. These could include:- Buy-Sell Agreement Funding – If a company has multiple partners and one of the owners dies, the shareholder's agreement most probably has the provisions for the shares of the deceased owner to be purchased by the other owners. In such situations, life insurance is the best way to provide the cash necessary to purchase the deceased owner's interest. In many cases and depending on how the policy is structured and the type of business involved, the premiums are often tax-deductible and the insurance benefits are also tax-free.
- Key Person Insurance – A company is generally insured against the loss or damage of its property since office equipment and inventory are considered valuable assets. But, what about the value of key employees? Key employees are possible a company’s most valuable resource. If this key person prematurely passed away, there could be a serious impact on profits and a sudden increase in costs with relation to hiring and training another suitable replacement. Insuring the life of a key employee can provide extra cash that will help keep the business running and offset any consequent reductions in revenue. There are some banks that demand key person insurance when approving significant business loans. This assures them that an unexpected death won't mean the end of the company and the lapse of any of their loan payments.
- Estate liquidity – If business owners transfer all or most of their business interests to family members only after their death, life insurance can provide the children the cash necessary for them to pay estate taxes. Life insurance is also an easier (and less expensive) alternative to deferring estate taxes.
- Estate equalization – In case a business owner leaves the business only to some children (active children), his or her life insurance can be left to the inactive children, thereby equalizing the inheritance among all the children. This policy is often owned by an irrevocable trust and also avoids the need and the unnecessary expense of buying off the company interests of the inactive children by the active ones.
- Non-Qualified Deferred Compensation Plans (NQDC) - A NQDC can be used by a small business to provide members of the senior generation with death, disability and/or retirement benefits. This is especially useful in situations where senior members no longer receive any compensation from the company and have handed over the business to the junior members. The tax-deferred cash value growth and tax-free death benefits make life insurance a popular means to fund an NQDC plan.
- Family bank - When a business is left to both active and inactive children, it is recommended that the voting interests lie only with the active children in the business. A life insurance policy on the owner’s life will create a ‘family bank’ that allows the active children to satisfy the needs and demands of the entire family. This policy is generally maintained as a trust for the benefit of the active children.
The requirements for life insurance can vary from company to company and individual to individual. It is a complex process that needs several factors to be taken into consideration such as the nature of the business, the needs of the owners, along with individual financial and family situations. But, as life continues to change, the one certainty that remains is the need to plan and prepare in the present for a hassle-free secure future.
About The Author:
About AccuQuote:
AccuQuote is a leader in providing term life quotes to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term life insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term life insurance rates by comparing thousands of life insurance policies from dozens of top-rated carriers.
|
|
