By: Wayne McLeod, Licensed Agent & Affiliate
At MFGS Life Partners small business owners are some of our best insurance clients and source of business inquiries. Not only do they usually have better-than-average incomes, but they are also subject to certain unique risks and have some unique opportunities due to their ownership of a business.
For example, a small business is typically dependent upon a key employee. What if that employee dies or is disabled? The business could be crippled due to the loss of that employee’s skill, ability to get things done, expertise, or customer relationships. The answer – key employee life and disability insurance – is often quite affordable.
Small businesses are often partnerships. What if one of the partners dies or becomes
disabled. Rachel may be concerned that if Heath dies, besides the fact that Heath is a key employee, she might need to quickly gather funds to buy out his share of the business. Also, Heath’s heirs might disrupt the business if they don’t like the financial arrangement. On the other hand, Rachel is concerned that if she dies, Heath might not be able to pay her heirs a fair value for the business, and he may not be able to continue to run the business without her. Thus, both partners are well served to have a buy/sell and business continuation arrangement in place secured by life and disability insurance.
Small business owners often have two large expenses looming in the future – retirement and estate taxes. The business owner may consider the business itself to be his retirement plan, but the fact that the owner is also a key employee makes many small businesses nearly worthless at the owner’s retirement. Plus, very few people want to buy a particular small business, further depressing the value below what the owner would consider fair. Fortunately, there are a variety of ways that business owners can store considerable money away for their retirement and reduce their income tax bill. Individual IUL’s, 401(k)’s and SEP-IRA’s are three examples. On the other hand, preparing for estate taxes may involve setting up a will and trusts, gifting the business to heirs over time, and providing a plan for how the estate taxes will be paid using joint second-to-die life insurance.
Besides planning for retirement on a tax-preferential basis, business owners can sometimes purchase certain benefits with pre-tax dollars. For example, owners of C-corporations can buy long-term care insurance for themselves on a tax-advantaged basis. LTC premiums paid by the business are tax-deductible to the business and are not considered taxable income to the employee, yet LTC benefits received are income tax-free to the employee. A plan like this can be set up where the only covered employee is the business owner. Newer insurance policies have a LTC Rider that pays 2 – 4% per month of death benefit up to $10,000 per month as an indemnity plan – not as a reimbursement plan. Therefore; no receipts are not needed, and you can use the money as you see fit.
So, let us help you learn the opportunities that are available to serve small business owners. They have unique risks and great opportunities. For more information go to our website – run some quotes and have myself or one of my agents answer any questions you may have.
Wayne McLeod – MFGS Life Partners