FAQ Business Owners Life and Disability
Q & A about Life and Disability Insurance for Business Owners and Corporate Executives
Informative Answers to Commonly Asked Questions
How can a business owner identify key personnel to insure?
Without these employees, the company would lose significant revenue income.
Which employee(s) should a company consider purchasing a policy for?
This depends on the nature of the business. Usually “C” suite management. Additionally, there may be other management team members that are considered vital to the organization.
What types of policies should be In-Force?
Both life & disability policies.
How much life and/or disability insurance should business owners, themselves, have to maintain proper coverage but avoid overspending on what is necessary?
It is often said, “insurance always costs too much to buy, though it is never enough when needed.” As this can be a unique amount proportional to each business owner, a professional and experienced business financial advisor should be consulted.
What factors should business owners take into account when determining coverage needs?
There are mainly two ways to earn money in our society: people at work or money at work (interest being earned). If a person is lost to death or limited by a disability, having the right amount of insurance to compensate for lost income is crucial.
Is there truth in having “too much insurance”? Could a business owner really “exceed their need”?
There is no such thing as “extra” money. Proceeds from different insurance policies can be utilized for multiple reasons.
When should (if ever) a business owner consider a Section 162 plan?
A Section 162 plan, also know as a “bonus plan”, works for tax arbitrage when there is a difference between the personal tax rate and corporate tax rate of the business owner. It also depends on the business entity type as to whether it is applicable. It is the same for key employees. There is usually a way to accomplish, on a tax-favored basis, the financial and insurance goals of a business owner.
How might an insurance policy factor into a business owner’s exit strategy?
There are three possible exit strategies:
- Selling the business
- Retiring or quitting
- Death or disability forced exits
Clearly, having the proper insurances in place should death or disability ever occur, is most vital. A retire/quit exit scenario could be funded with a cash value policy in place, where significant assets have been accumulating. Selling the business may be an opportunity to insure the life of the seller. Here, the new business owner may use this policy as a key person policy. In doing so, the new business owner may keep the business seller on file as a consultant for a period of time, until the business transitions over completely to the new owner.