Benefits of Properly Structured Whole Life Insurance in a Business
The best time to plant a tree was 20 years ago. The second best time is now. –Chinese Proverb.
As a small business owner, you face certain battles daily, and winning determines if your business gets to advance to the next day or year. You already know what’s involved in running a business, but did you know leveraging life insurance can help you run your business more efficiently? Life insurance at its core is a death benefit, but there are living benefits as well. I want to share with you how top businesses and banks use life insurance to maintain control of their finances.
Cash Flow
The biggest problems a business can face, can come as a result of insufficient cash flow or poor management of that cash flow. If you run a business that depends on cash daily, it’s crucial to maintain a balance, or else you might find yourself up the creak without a paddle. The cash needs to come in to pay the bills. A construction company for example, needs enough in reserves to pay the crew while waiting on payment for the job. When the waiting ends up being close to a few months or a year, you have some explaining to do. To the guys and your QuickBooks.
If you have money in the bank, you have a place to draw from, but then the money doesn’t have any growth. This is where life insurance can help with the cash flow. It serves as your own personal bank. You keep your reserves in the cash value account for when you need it. While it’s in the account it has growth, when you borrow against it, it maintains the compounding effect. This way your dollar is doing two things at once. When you put the money back, the account continues growing as if you didn’t touch it. The money is secure, liquid, and has competitive tax free growth.
Employee Benefits
The most important assets in a business, are the skilled people that make it all happen. If your teams MVP didn’t show up for the game, how would the team perform? Better yet, if the MVP went to play for the competition, how would that change the game? Life insurance in this case would be an additional benefit to the employee, and the business. This is the golden handcuffs strategy. If the employee died, the benefits would pay out to the business to cover the loss of a valuable asset and then pay for a replacement. If the employee made it to retirement, the policy would then work as an additional money bucket for the employee to use as tax free retirement income.
Tax Minimization
Life insurance is a popular tool used in non-qualified(tax paid today, no tax later)retirement planning. One of the main reasons why corporations and banks fund permanent insurance contracts is the tax-free growth. The cash value account in the policy grows tax-free, so when you need money in retirement, you can access it income tax free. And even better, once the policy cash values are spent down, there’s a tax free death benefit(minus the cash loaned out) that would be paid out to the family upon the death of the insured. Ask your tax professional if life insurance premiums would be tax deductible in your personal or business’s situation.
Do you see how cash value life insurance can be part of your business’s strategy as well? Send us message if you would like us to connect you to a qualified specialist to discuss your options.
