All About Business Protection Life Insurance: All About Business Life Insurance Information By Insurance Experts

Key Man Life Insurance
By Julie Shields Platinum Quality Author

One of the most significant uses of life insurance in a business is "key man insurance". With key man insurance, your business financially secures itself against the potential early loss of someone who is so vital to the company's profits or continuance that without them it's a very realistic possibility that your company will suffer severe financial losses or have to fold entirely. Key man insurance is most often used by smaller businesses, but big businesses also use it.

Key man life insurance is different from disability insurance on a key man. Life insurance on a key man (or woman, for that matter) covers against the permanent, irrevocable loss of them from participation in the business. It pays out the death benefit to the company (which is also the payer of the premiums), which can then use the proceeds to pay off creditors, make it affordable to hire a successor, or set up a "buy-sell agreement" to buy out the deceased company (wo)man's shares.

Now, many people naturally assume that the key man insurance policy needs to be on the company's founder/owner or a member of the highest ranking executive management. This is, indeed, often the case. But it doesn't necessarily have to be that way. The "key man" (or men; there can be more than one) might be a top salesman without whom your business will take serious hits to its revenues; or that marketing director without whom nobody knows where or who you are.

So, when should your company consider buying key man life insurance one one or more members or employees?

Again, if the ongoing activities of the business are heavily dependent upon a certain person, that's one time to consider key man insurance. One note: if the key member in question is under the age of 65, s/he should also have a disability insurance plan that coordinates with the key man life insurance. You see, working people under the age of 65 are far more likely to become disabled than to die an untimely death. If you coordinate your key man life insurance with disability insurance, you'll save on premiums while having a better comprehensive insurance plan.

Key man life insurance can also be necessitated if a smaller business takes out a business loan. The loan is officially granted in the name of the key persons, who in turn take out at least enough of a life insurance policy to pay off the full principle of the debt if they die before the loan is paid back.

With some smaller businesses, they have a great salesman who brings in a very large percentage of their revenues. If he dies, it will be difficult to replace him, and there will be a time lag between his death and finding and training the new salesman anyway. During this time, company revenues may go down through the floor. The company can use the death benefit proceeds to keep paying expenses that would have been paid for by that salesman's work. An analogous situation might exist for, say, an IT company that has a "genius" software designer or computer scientist on its staff--without her, they could very well see a precipitous drop in productivity for a while and will need the death benefit pay to sustain them while they find a replacement or adjust.

Now, how much death benefit should be carried on the key man? This depends on both the size and the debt situation of the business. Some companies carry this life insurance policy in face amount that's just twice or triple the person's annual salary. But many such policies are written for as much as 15 times their annual salary.

If you feel that you need this kind of life insurance for your company's most important person or people, consult with some life insurance agents to find out how to acquire it.

The author lives with her husband in Maryland, with their two dogs and cat. She put together the website http://www.affordable-life-insurance-guru.com in order to help the everyday person navigate the often confusing world of life insurance

Article Source: http://EzineArticles.com/?expert=Julie_Shields

Term Life Insurance - A Safeguard for Small Business Owners
By Carrie Reeder Platinum Quality Author

Term life insurance can offer protection for a small business and its owners in surprising ways. If you own a small business, you probably pay property and liability insurance, and are protected against fire, theft, flood and other disasters. But what would happen if you or one of your key employees was suddenly unable to work due to disability - or death? If something happens to you or one of your partners, what happens to your business? Who will pay outstanding business loans and other obligations?

That's where term life insurance comes in.

As your company grows, there are very likely to be one or two key people without whom you'd find it difficult to function. Besides you, there may be an accountant who understands the books inside and out, or the sales manager who drums up most of your sales. By taking out a term life insurance policy on each of those people, you can insure your company against the losses it would inevitably face if one of them were to become unable to work because of death or disability.

Why term life insurance? Especially for a young company, the lower premiums and limited term of coverage make more sense. As the company grows and becomes more stable and successful, a term life insurance policy can often be converted to a whole life key person policy - a life insurance policy that is specifically designed to cover the loss of a key person in an organization.

A term life insurance policy can also be used to cover partners in a business who agree to a buy-sell arrangement. In this case, if one partner dies, the death benefit is used as a 'buyout' to purchase his half of the company from the family. That way, the family of the deceased partner isn't stuck with a business in which they have no interest, and the surviving partner isn't forced into accepting the family as a partner.

Sometimes term life insurance isn't the best option. A whole life policy, for instance, allows you to use your investment in the policy to finance and fund projects, can help provide the basis for a retirement plan, or provide a cushion for the business to borrow against for expansion.

Whether you choose whole life or term insurance, though, key person insurance is a protection that your company shouldn't be without.

To view our list of recommended Life Insurance Companies, visit this page:
Recommended Life Insurance Companies.

Carrie Reeder is the owner of eZerk, an informational website with articles and the latest news about various topics.

Article Source: http://EzineArticles.com/?expert=Carrie_Reeder

Buy Sell Agreement - Life Insurance Buy Sell Agreements For LLC Or Corporation Business Partners
By James J. Robinson

The first question most people have is what in the world is buy sell life insurance? In closely held businesses the death of one owner can cause a plethora of inconvenient issues to arise within the business. Depending on the deceased owners' estate planning, the remaining business partners could face a number of legal and financial hurdles.

A buy-sell agreement is a contract among business owners, where upon the death of one of the owners, the remaining owners are required to purchase the deceased's interest via the terms of the contract (buy-sell agreement) and the deceased's survivors or heirs are required to comply by selling their inherited interest at the pre-determined price.

The buy-sell life insurance method is becoming more and more attractive to business owners because it avoids the question of how family members are to ensure they are receiving a fair price for their inherited share in the business. It also avoids the corporation having to produce a large amount of cash to redeem the heirs' interest in the corporation, and it avoids corporations having to deal with unwanted and potentially inexperienced partners (such as the spouse of the deceased).

Cross Purchase vs. Stock Redemption

There are two basic formations of buy-sell agreements. The first is a cross purchase agreement. The next is a stock redemption agreement. In a cross purchase agreement each owner of the corporation will purchase a life insurance policy on the other owners, and will in turn be named the beneficiary of the policy. In a stock redemption agreement the corporation purchases the life insurance policies. In each instance when an owner dies either the corporation or the other owners will use the proceeds of the life insurance policies to redeem the deceased owners' interest in the corporation.

Pros and Cons Of Buy Sell Agreements

These agreements are financially advantageous to both the corporation and the individuals that stand to inherit interest in the corporation. The fair market value of the owners' shares are agreed upon at the time of the signing of the buy-sell agreement. The proceeds are paid out to the other owners who then use the funds to purchase or buy out the deceased owners shares. There are no income tax consequences to the deceased's family as a result of the "sale", nor are the proceeds subject to corporate creditor claims or the corporate alternative minimum tax. As a result of the life insurance proceeds there is a lump sum of cash available to buy out or "fund" the agreement at the time of death, without having to go thru the probate period required by most states.

There are some drawbacks to the life insurance buy-sell agreement, most centering around the premiums paid into the life insurance policies during the lives of the owners. Since insurance premiums are not paid with pre-tax dollars, they are usually not tax deductible. Depending on the age and health of the owners, some of them might not be insurable. The uninsurable owners would really have no incentive to participate in a buy-sell agreement, which would result in an inequitable situation in regards to stock redemption agreements. Also, since interests and ages of the owners of the corporation could vary widely, there is a chance that the corporation will have to pay higher premiums for older owners and for those with smaller interest to pay a disproportionate share of premiums.

There are other ways to fund buy sell agreements, each with their own set of advantages and disadvantages. However, depending on the size of your corporation (or partnership or LLC), age and interests of its owners the life insurance buy sell agreement is an excellent way to ensure that your family and co-owner have the easiest transition of your shares in the event of death.

Buy Sell Agreement Life Insurance Quotes

Be sure that you shop around and compare life insurance quotes from multiple companies before purchasing a policy. A little bit of research spent early on will be well worth it when it comes time to draw up the paperwork.

Get started shopping around and finding life insurance today!

Article Source: http://EzineArticles.com/?expert=James_J._Robinson

Back To Insurance Contents

Back To General Contents ( Home )

Back To The Top