When should life insurance be utilized for businesses and business owners?They write whole books about this, but let me list just a few areas where it may be appropriate.
Many businesses are sole proprietors or family owned. When the business negotiates a loan with the bank, the bank usually wants a personal guarantee of the owner to repay the loan. A life insurance policy on the owner in the amount of the loan can make sure that at the death of the owner, the loan can and will be repaid to the bank without undue financial strain on the business.
If your business has more than one owner, it would be good business practice to have a buy-sell or stock redemption plan in place. If one owner dies, the agreement specifies how the deceased owner’s share of the business will be purchased.
While this buyout could be spread out over a period of years, the cost to the business could be difficult to sustain if it adversely affects the companies cash flow. Life insurance, purchased at a minimal expense, may be a much more cost effective solution to funding the cash required for the payout. It also provides peace of mind the other owners and the deceased’s heirs knowing that they are assured of receiving the payout as specified in the agreement.
There are many more uses of life insurance for business, and we will discuss these in future blogs.
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