You’ve worked hard to set up your business and are committed to achieve long-term goals for you and your family. We understand that running a business involves consistent efforts of key persons, along with investment of substantial capital. Whether you are running a business on your own or with a partner, for successful accomplishment of your goals, you need to ensure that your built-up wealth should remain protected against any unforeseen circumstance such as death or disability. Here, Business Life Insurance can prove a valuable tool to cater to your future financial needs.
MEANING OF BUSINESS LIFE INSURANCE
Business life insurance is a term or permanent life insurance policy purchased on the life of the key persons upon whom the stable operation of the business rests. These primary stakeholders include the owner, his partner and the key employees.
Business life insurance can prove to be an immensely useful resource to tackle various financial needs such as covering mortgage or business loan, providing funds to purchase a deceased partner’s interest and ensuring your family’s financial stability by keeping your assets intact for your loved ones. Moreover, like other life insurance policies, it also helps to meet your future needs such as supplementing your retirement income, providing funds for a business opportunity besides enabling you to buy your partner’s interest when they retire.
The great feature of business life insurance is that it helps you to accumulate savings in a tax sheltered manner, and in case you are no more to take care of your loved ones, the funds pass over to your heirs or estate which they can use as per their financial needs such as final taxes and settlement costs.
HOW DOES BUY SELL INSURANCE WORK?
For Buy Sell insurance, first, you need to get valuation of your business done by your accountant (CPA) or professional tax lawyer, and for the insurance; you need to get a buy-sell agreement through a tax lawyer. The insurance will work as a tool to protect your assets in case of any unforeseen circumstance. According to a predetermined formula, the business partners sell their shares to the company. In case one of the partners dies, the insurance company provides death benefit to the deceased partner’s beneficiary/heirs and in turn, the deceased partner’s heirs relinquish control to the surviving partners.
Also, if there is a key employee who is very vital for the organization, your clients are dealing with him directly and an immediate replacement is not possible; to avoid stress and financial setback, you can purchase Key Person Insurance. This will help you cover the replacement costs in case your key employee passes away.
Let us understand the concept with the help of an example. A company ABC having market value of $2 million is owned by two partners X and Y both aged 35 years. Both of them are non-smokers and healthy. They have purchased $2 million, 20-year Term Business, Joint Life First-todie Insurance with company as the beneficiary; and pay approximately $185 premium per month. We do pray that they remain in the best of their health. But God forbid, if X dies, the death benefit of $2 million will pass over to the company, who will pay the surviving spouse of X; and the other surviving partner Y will purchase the shares of the deceased partner X. The surviving partner will not face any financial hassle and won’t have any guilt regarding the spouse of his deceased partner; as probably, it may not be easy to get along with the spouse of his partner since she may not have any understanding of the business.
In this way, the wellbeing of both the partners and their families remains secured. While the deceased partner’s family will get the financial support for their required needs and will be saved from financial crisis, the surviving partner successfully manages to keep the business in operation for which both the partners had worked so hard to make it a success.
As we can see, Business Life Insurance is an extremely vital tool to safeguard the wealth of the company owners who have worked hard to build up their dream venture. So it’s vital that if you own a company alone or with a partner, save your wealth with the help of Business Life Insurance. As an independent insurance advisor working through Punjab Insurance Agency, I deal with different insurance companies offering plans for different types of insurance. I can explain to you in detail, the insurance plan options and coverage that are suitable for your needs and resources. Besides, I can also help you to purchase mortgage insurance, super visa insurance, disability insurance, critical illness insurance, extended medical plans, group medical plans, RESP, RRSP, travel insurance, TFSA accounts, health and dental plans along with estate planning suitable for your needs and resources.
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