Life Insurance: Part of Your Financial Plan

Life insurance, often referred to as "love insurance" is a crucial aspect of financial planning, offering essential protection for individuals and their families.

Its primary role is to provide a safety net in the event of an untimely death, helping loved ones manage financial responsibilities like mortgage payments, debts, and education costs. However, life insurance is not just for personal security; it can also serve as an important tool for business owners.

PROTECTING YOUR BUSINESS

For business owners, life insurance can be used to protect both the company and the family. A key person life insurance policy can help cover the loss of a critical employee or owner, providing the business with financial stability to weather the transition. In the case of a partnership, buy-sell agreements funded by life insurance allow surviving partners to buy out the deceased's share of the business, preventing conflicts and ensuring smooth continuity.

Additionally, some life insurance policies build cash value over time, providing a potential source of retirement savings or emergency funds. For business owners looking to diversify their financial planning, these policies can offer an alternative to traditional investment options.

TAX CONSIDERATIONS

However, life insurance policies come with various tax considerations. The proceeds from life insurance are generally tax-free for beneficiaries, but the way a policy is structured can influence how taxes affect the overall financial situation. For business owners, life insurance can have implications on both personal and business taxes, particularly when using the policy as part of succession planning or funding business agreements.

WORK WITH A PRO

A tax advisor can help business owners optimize their life insurance policies, ensuring they are tax-efficient and aligned with their overall financial goals. Whether structuring key person insurance, designing buy-sell agreements, or planning for estate taxes, a tax professional can guide business owners to make the most of their life insurance strategy.

Life insurance is essential for both personal and business financial security. For business owners, it offers additional benefits, including risk management, succession planning, and tax advantages — making it even more important to work with a tax professional to maximize these benefits.

72% of people overestimate the cost of a life insurance policy with the perception that it cost three times more than its actual price.

Source: 2024 Insurance Barometer Study, Life Happens and LIMRA