Manage Risk with Life Insurance

As a business owner, you may have two essential estate planning goals: to ensure that your business survives and to provide your family with sufficient cash to maintain their lifestyle should the unthinkable happen. September is life insurance month, a good time to consider how life insurance can help you meet both objectives, as well as others that are also important to you.

Pay Estate Taxes

Even if your business has a healthy valuation, it is still an illiquid asset. Selling it quickly probably would not be a practical option. That could leave your family scrambling to come up with the money to pay estate taxes. Additionally, the sale of your business may not be what you envisioned for it in the future. Life insurance can provide the funds to pay estate taxes, while freeing your family from the burden of finding the cash and honoring your wishes to keep your business intact.

Equalize an Inheritance

If any of your children are involved in your business, you may want the business to pass to them at your death. But what if you have other children who aren't involved in the business? If you do not have enough assets to equal the value of your business, you could purchase a life insurance policy and name the other siblings as beneficiaries to equalize their inheritance.

Fund a Buy-Sell Agreement

Under a typical buy-sell agreement, co-owners of a business each take out a life insurance policy and make the other owner(s) the policy beneficiary. When an owner dies, the surviving owner(s) use the policy proceeds to buy the deceased owner's share of the business.

When there are multiple owners, an entity purchase agreement may be used. Under an entity purchase agreement, the company owns insurance policies on the lives of the owners. When an owner dies, the company receives the death benefit and uses it to buy the deceased owner's share from his or her estate.

Talk to Your Family

Your plans for your business and your family's inheritance shouldn't be a surprise. Tell your family what you're thinking and ask for their opinions. Family members may make valid points that you didn't consider.