As a business owner, you constantly have a target on your back. Accidents could happen at any time that cost your business big time money. Is your business insurance up to the task? Your insurance coverage should protect you from the main target areas to which your business is exposed.
One of the main duties of the executive team is to protect the assets of the business. If protections are not in place to prevent theft, property damage, etc. then the executive team could be the target of a lawsuit from the shareholders. Even in the case of a small business, the owner needs to have safeguards in place to ensure the company’s assets are properly protected for the sake his or her family’s financial well-being.
In order for the insurance benefit to be a non-taxable payment, the business must meet two of the following criteria:
a) The employee/owner must have been employed at least 12 months preceding the death
b) Prior to issuance of the policy, the insured individual was notified in writing of the business’ intent to insure the individual’s life, and the individual provided a written consent to be insured
Buying life insurance on non-owners who are key team members provides the business with a tax-free source of funds to hire replacement staff to keep the business operating at peak capacity.
In a business with multiple partners or shareholders, there is no need to involve any third parties to purchase the shares of the business owner upon his or her death. The remaining business owners can enter into a pre-arranged buyout of the deceased owner’s shares using a life insurance death benefit to provide the necessary cash.
This arrangement has a number of benefits including keeping the ownership in the hands of people most familiar with the business, providing needed cash to the surviving family of the deceased business owner, and avoiding the prospect of having the deceased owner’s surviving family members becoming involved in the business.