I have been the beneficiary of two life insurance policy payouts in my lifetime. One was while I was a partner in a farm equipment dealership and the other on the passing of a close family member. I’m very passionate about the many benefits that life insurance, critical illness, disability and other kinds of coverage provide. One’s life, family and farm or small business deserve protection. If you’re a farmer or small business owner, insurance can provide security in ways that may surprise you. It can also provide the opportunity to help build your business and assets and in a tax-effective way for your retirement or estate plan.
Purchasing back shares: If you have one or more shareholders in your business, consider insurance when it comes to your Shareholders Agreement. In the event of the death of a shareholder, having insurance on their life means immediate funding will be available to purchase the shares of the deceased shareholder and allow for a smooth transition so that the business continues to thrive. This method is a more cost-effective and convenient way to fund a buy/sell agreement than borrowing money, liquidating assets, creating cash reserves, or using after-tax corporate profits. Without the funding, the deceased’s spouse or child could end up becoming a shareholder, an outcome which may not be desirable for the parties involved.
Provides collateral for a farm or business loan: If you need a loan to grow your business, your life insurance policy can help put you in the right position. Lenders often ask a borrower to provide life insurance on the lives of the key shareholders or employees as a condition of lending. This means that your insurance policy will not only protect you, your family members, your corporation, and key persons to the business, but it can also help enhance cash flow to your business.
Here are a few other options to think about:
Key Person Insurance: Common with small and medium sized businesses. This protects your business if you have one or more key people (e.g. yourself, another shareholder, a hired executive) whose death, disability or critical illness would harm the financial health of the business.
Charitable Giving: Corporate owned insurance can be used as a tool to donate to charities. You can assign the policy ownership to the charity, use the policy to fund an estate gift, or use it to fund corporate gifting.
Estate Protection: Insurance can be used to pay off debts or taxes due upon death, thereby protecting the value of your estate, providing a tax-efficient way to enhance or create your estate.
Estate Equalization: It’s common with farm and family businesses that not all of the children want to, or are suited to, work in the business. But the parents usually want all of their children to be dealt with fairly. Life insurance can provide both cost effective and tax-free funds to help provide equitable funding to those children.
Learn more about how insurance can provide protection and help you build assets for your retirement or estate plan. Contact your advisor today.
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