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Posted: September 13, 2009

Life insurance: it’s not just for people

Use it to protect your business, too

Scott Sparks

When it comes to life insurance, many of us undoubtedly think of it as a means of providing for our loved ones when we're gone. But life insurance can be a useful, flexible tool for small business owners as well.

 Just like individuals, businesses face risks. After investing so much time and hard work in your business, it is one of your greatest assets, and you need to protect it.

An Employee Benefit
First and foremost, life insurance can be a benefit for your employees. Offering a full benefits package, with life insurance as a foundational component, can be vital in attracting and retaining quality employees to grow your business.

Once you have those key players in place, providing life insurance, among other benefits, can help assure employees their contributions are valued, strengthening workforce bonds and communicating your understanding that safeguarding an employee's family against the unexpected is a high priority. Of course, life insurance can protect more than just people, it can protect intangible components of your business as well.

A Cash Flow and Productivity Tool
Business success is often based on a select group of employees. The disability or death of one of those key contributors could be devastating to a company's productivity and growth, not to mention its credit ratings, customer relations and overall business continuity. Protecting these high performers with disability income wage continuation plan and life insurance protection, should anything happen to them, can provide the income and assets needed to strengthen cash flow, hire and train replacements and assure creditors of business continuity.

A Succession Planning Tool
Life insurance can also be a good tool when it comes to succession planning. In a business with joint ownership, a buy-sell agreement is often created to set mutually agreeable terms and price, facilitate smooth transition and control of the business. If something should happen to one owner, a buy-sell agreement allows the other owners to easily purchase his or her interest in the company.

A life insurance policy can be one of the best financial tools to fund the buy-sell agreement. Co-owners can each be the owners and beneficiaries of life insurance on the other owners. Alternatively, the business can be the owner and beneficiary of policies on each of the partners. If one partner dies, the surviving co-owner or business receives the death benefit and uses the money to purchase the business interest from the deceased owner's estate. This provides the estate with the cash, without requiring ongoing involvement in the business, while allowing the remaining owner(s) to continue operating the business as smoothly and efficiently as possible.

A Capital Tool
In addition to protecting employees, owners and the business itself, life insurance policies can be used for capital. Any whole life insurance policy offers living benefits on the policy's cash value. You can borrow against the cash value to help fund business needs. If an employee leaves, the business can sell or transfer a policy on that employee to the departing employee, surrender it for its cash value, or transfer the policy to another key staff member.

The ultimate goal of any business is creating wealth for its owners. Providing for key employees, and protecting profitability and the business's bottom line can be a big factor in creating that wealth. Life insurance can offer that protection and give you flexibility and options for maintaining your business should you lose a key player or even a partner. In any case, you always have the best opportunity to deal with such a loss when you plan for the contingency before it happens.

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This article was prepared by Northwestern Mutual with the cooperation of Scott Sparks CLU®, ChFC®. Sparks is a wealth management advisor with Northwestern Mutual Wealth Management Company (WMC), Milwaukee WI at Northwestern Mutual - Denver, a network office. Northwestern Mutual is the marketing name for the sales and distribution arm of The Northstern Mutual Life Insurance Company, Milwaukee, WI (NM). WMC is a subsidiary of NM and limited purpose federal savings bank. Northwestern Long Term Care Insurance Company, Milwaukee, WI, is a subsidiary of NM. Securities are offered through Northwestern Mutual Investment Services, LLC, a subsidiary of NM, broker-dealer and member FINRA and SIPC.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

You're right. Offering life insurance is really a show of faith from the company to the employee. They will appreciate it and most likely work harder and more efficiently for you. By Tony on 2010 11 04
A well-thought-out benefits package understands an employee's needs and also keeps in mind the employer's objectives. In prevailing market conditions, a competitive benefits package can serve as a nice recruitment tool and also act as an effective tool for employee retention. By Janine Flahive on 2009 09 14

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