Life Insurance for Businesses
A clever wealth
management tool
Life Insurance for Businesses
Traditionally, life insurance protects the insured’s family. A more modern and innovative approach is to use life insurance for business purposes as well.
Large amounts of life insurance cover can be used to:
- care for a family and better manage wealth distribution and inheritances;
- cover death/estate taxes;
- fund philanthropic interests;
- protect assets; and for
- business planning e.g.
- executive benefits;
- Buy-Sell agreements between business partners; and
- key person insurance for senior executives.
Premiums
If cashflow from a business is better spent growing the business, then you can borrow to pay the premiums.
Why borrow to pay premiums?
Purchasing life insurance using premium financing is an innovative, financial strategy, and ensures:
- the ability to secure larger amounts of insurance cover;
- tax-deferred growth on capital; and
- capital from which one can make withdrawals, or take out tax-free loans.
Borrowing makes financial sense if cashflow/money, which might have been spent on premiums, can earn a higher return than the loan costs, say by continuing to acquire, grow and preserve other business assets.
Borrowing means not having to sell assets in a “down” period, to pay premiums.
Premium loan process
Premium-financing involves two separate financial instruments, and the application process takes place in two stages.
Step One: The application for a life-insurance policy. The client’s agent submits an application for the life-insurance policy. The life insurance company completes the medical and financial underwriting to determine whether the client qualifies for the policy.
Note: that normal considerations regarding timeliness and complexity should be given to the processing of large cases.
Step Two: The application to borrow the premium after the policy is approved, the agent submits the case to lenders who decide whether or not to lend the money for the premiums. The lender analyzes the borrower’s credit and financial status, availability of collateral etc., and decides whether or not to make the loan.