11 Jan How To Use Life Insurance To Benefit Your Business
By CJ Jordan
When most people think about life insurance, they usually associate it with protecting their family in the event of their death. Usually, it’s with a term or permanent, “whole life”, policy. It protects the future of their loved ones, providing peace of mind and stability during a trying time for their family.
While that is the most common and practical use, there are additional uses of this type of insurance policy within the business world.
What if you could provide that same stability and peace of mind to your business in the event of a death?
In this blog we will explore three different uses for life insurance and how it can provide value to your company – and your employees.
Key Employee Life Insurance
What would happen to your business if you lost one of your top sales reps or someone else critical to the success of your organization? Top employees are rarely a dime-a-dozen. Replacing their productivity and value to the organization cannot be done overnight. Replacing their relationship – with your team and with your clients – will certainly take time.
Key employee life insurance policies protect your business in the event something happens to a key person within the organization. This is a life insurance policy the organization takes out on an individual employee (the insured). The organization pays the premiums each month and receives the benefits in the event of a loss (beneficiary).
When considering how much insurance to get for a key person, the company should consider the estimated cost of finding, hiring, and training a replacement, as well as how long it might take this person to begin producing and creating value for the organization.
Key employee life insurance not only provides financial support at that time, but it essentially allows your company time, or breathing room, in the event of such a loss that could potentially be devastating to your profitability.
Executive Bonus Arrangements
Similar to Key Employee Life Insurance, an Executive Bonus Arrangement is a life insurance policy an organization will take out on one of their employees and pay the premium. However, the biggest difference with this option is that the employee gets to name their own beneficiary as opposed to the company being the beneficiary.
In the event that your employee dies, their beneficiary would be the recipient of this policy without ever having to pay into it. This is not only a way to reward and care for your employee and their family, but it’s an attractive bonus to offer prospective employees. By using life insurance in this way, your employee benefits program will certainly help you attract and retain great talent.
Organizations can offer this life insurance option to any of its employees as a way to recognize and reward their value to the organization through an employer-financed, personal life insurance policy. This policy offers the selected employees additional security for their families, without the additional cost of higher face value policies.
What happens to your business when you are gone? What happens to the company if something happens to your business partner? Is their family or spouse suited to step in and fill their shoes?
Buy-sell agreements establish a plan should one of the business owners die. There are a couple of different ways to do this, and we won’t get too in the weeds with them, but the agreements stipulate that owner(s) can purchase the deceased owner’s interest, while also obligating the deceased owner’s heirs to sell their interest in the company to the other owner(s).
This agreement creates a plan for a business to survive in the event of a death of one of the owners.
In many cases, this policy simply provides the funding needed for a surviving partner to purchase the deceased owner’s interest in the company without financial stress at such a pivotal time. In other cases, it could also be an agreement made to protect each partner, and more importantly the business, from unforeseen or unwanted influences from heirs that are new to this business. This form of life insurance enables partners to continue building their culture and future just as they would without the loss.
Yes, life insurance is an important tool for individuals to create estates for their families and make sure they are protected if they die; however, businesses can also use this type of insurance to protect their business and provide additional comfort and support to key employees.
Is your business taking advantage of life insurance in one of these three ways?
All in all, Key Employee Life Insurance, Executive Bonus Agreements, and Buy-Sell Agreements provide added value to both your company and your employees. In their own unique ways, these three uses of life insurance protect your culture as well – something that we highly value at Byars|Wright.
While we hope that you don’t ever have to use it, protection and risk management is key. If you’re considering these strategies, you’re planning for a strong and secure future!
An experienced independent insurance agent should be able to help your business this way. By taking the time to understand your organization and goals, I can provide you with the best options and uses for life insurance.
Are you considering all of your Employee Benefits? Need a refresh? Take a look at CJ’s blog on Employee Benefit Changes You Should Make Going Into 2021.
Byars|Wright is a locally owned and operated independent insurance agency with five offices in the greater Birmingham area – including Jasper, Gardendale, Homewood, Alabaster, and Cullman – that has developed into a major provider of commercial and personal insurance. Since 1946, the agency has expanded its scope of business and delivers a wide-range of insurance products with quality coverage at competitive prices. Byars|Wright has been designated a Best Practices Agency by the Independent Insurance Agents and Brokers of America since joining the study in 2016. The family-owned agency was also named “Best Companies to Work For in Alabama” by Business Alabama in 2016, 2017, 2018, 2019, and 2020, winning first place in their category in 2020.
We Build People, Protect Relationships. Byars|Wright is Where Relationships Matter.