Can You Pay for Life Insurance Through Your Business? Here's How

Whether you’re a retail store owner, you are constantly in search of how to get the most out of your profits while incurring minimal expenses. As the insurance plan is purchased for the future coverage of a livelihood, one question that comes to mind is ‘can I pay life insurance through my business.’ The short answer is yes, that participation is acceptable and indeed expected under some circumstances, but there are some things that have to be kept in mind. In this article, we show you how to utilize your business or employer in your life insurance to get better deals for your business as well as improving your financial planning.

Understand Business-Owned Policies

Business-owned life insurance policy is an insurance policy bought by the company on the life of employee or the owner. They may include pacts that help to cover losses in the event of the death of a key personnel, provide financial for buying and selling arrangements as well as offering other employee benefits. When a policy is acquired by an enterprise, then the enterprise has to make payments for premiums while it is usually the recipient. Such a structure can provide a number of benefits such as possible tax optimization and recruitment of the best employees. However, there are some important rules and regulations which pertains to the business-owned policies that has to be followed to the later since failure to do so may lead to all benefits being terminated.

Evaluate Key Person Insurance

Key person insurance is a special type of business-owned life insurance which targets at neutralizing a negative effect of losing an important business personnel. This could be a founder, top executive or any other individual that the demise will have serious repercussion on the business in terms of operation or funding. The business buys a life insurance policy of the key person, makes payments for the policy and is the policy’s assignee.

In the event that the insured dies, the business gets the face amount that can be utilized to offset any losses, look for a new person or to ensure that business does not look down during the period of replacement. Some of the common types of the business insurance include key person insurance which may be very crucial for a small business or a startup business which depends significantly on the key personnel.

Explore Group Life Insurance

Another common type of life insurance policies that businesses can offer for its employees including owners and executives is the group life insurance. Such policy enables more than one person to be under a particular policy at a cheaper price as compared to separate policies. Group life insurance is often a component of employee benefit programs in which the employer absorbs all or part of the costs in relation to premiums. This coverage is usually expressed in a multiple standard of the salary of the employee concerned.

Group policies are ideal when it comes to offering a broad policy for all your employees, however, it may not be rich enough to protect hardened executives or business persons. Furthermore, most group policies are non-portable, implying that the employee and his/her household ceases to be covered in case of job change.

Consider Executive Bonus Plans

Known as executive bonus plan or Section 162 bonus plan, it is a strategy that enables a business to offer more benefits which are in the form of life insurance to the employees or owners of the organization. In this structure the company obtains a personal life insurance policy for the executive and pays the premiums thereon. Premium payments are considered as supplementary wages to be given to the employee while on the other hand, are claimed as an allowable deduction to the business. The employee is in full charge of the policy and does not necessarily follow you once the person resigns from your company, for instance.

As such, this method can present an effective means of providing tailored life insurance solutions as an integrated component of total reward strategy. These plans have to be designed following sound legal frameworks to conform to the current laws set forth by the IRS while at the same time directing the best value for the respective firm as well as the insured person.

Comply with Legal Requirements

Many states have their own regulations pertaining to this type of insurance bought by the business and its practical application is complicated and encompasses several rules. This is especially so where the life insurance is on the lives of the employees and therefore adequate consents need to be sought. The requirements for the notice and consent for employer owned life insurance policies were created by the Pension Protection Act of 2006.

If the above-mentioned requirements are not met the death benefit is likely to be treated as a taxable benefit. Also, there are the state specific insurance laws which the businesses need to note since they differ across states. There are certain states that prohibit one from naming a corporate owned policy on an individual of his choice or restrict an employer from obtaining a large amount of cover on an employee’s life.

There are also conflict of interest scenarios that one needs to look at especially when insuring minority stakeholders or in businesses with a few shareholders. Due to the fact that the legal factors that surround these are quite complicated, it is important that a business hires an attorney to help in their legal issues.

Conclusion 

To purchase life insurance, it is highly recommended that you utilize business funds since it may be one of the ways in which you may be able to cut some taxes, take care of your employees, and protect your business. Depending on the business structure and requirements, there are various options that can be reviewed or considered and they include key person insurance, executive bonus plans or split dollar plans. However, great attention should be paid to the largely complicated issues connected with taxes and legal aspects. Therefore, whenever you are faced with any of the issues stated in the article, simply engage the services of qualified life insurance experts and ensure you remain updated with new laws that may affect the use of life insurance policies in protecting your business, attracting employees of your dream and securing your financial future. Do not forget, appropriate action with regard to business-owned life insurance is vision that can help you, your employees and the future of the business.