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Business owners have their own special financial needs
like special fringe benefits for select employees as
well as Business Continuation Plans such as.
- Split Dollar Life Insurance
Plans for key employees
- Buy/Sell Agreement Funding for
business partners
- Key Man Life insurance Executive
Coverage
Split Dollar Life Insurance
An arrangement of Disability Income Insurance in which
the employer and employee each pay a portion of the premium.
The employer purchases coverage for the sick pay or paid
disability leave provided as an employee benefit. The
employee pays for disability coverage beyond what the
employer provides as a benefit.
The arrangement under which an employer and an employee
share the costs and benefits of a cash value life insurance
policy on the employee's life is known as split-dollar
life insurance. Given that SDLI arrangements are not subject
to the antidiscrimination rules applicable to qualified
retirement and other types of benefit plans, such arrangements
give employers added flexibility in rewarding key personnel
and shareholder -- owners; in addition, these arrangements
also are advantageous to employees, because they cost
less than personally owned life insurance.
In most cases, the employer pays all the premiums and
the insured is treated as receiving taxable income.
Buy-Sell Agreement
An agreement among owners in a business which states
the under certain conditions, i.e., disability or death,
the person leaving the business or in case of death,
his heirs are legally obligated to sell their interest
to the remaining owners, and the remaining owners are
legally obligated to buy at a price fixed in the Buy-Sell
agreement. The funding vehicles are either disability
or life insurance or both.
To make sure there's a smooth transition following
the departure of a business partner, it's important
that business owners in limited liability companies,
corporations and partnerships write a buy-sell agreement
at the start of their relationship.
A buy-sell agreement can be one of the most important
elements in meeting a business' objective to continue
in profitable existence following the death of one of
its owners. Such an agreement should be an integral
part of the financial and estate plan of any business
owner.
The buy-sell agreement provides an equitable means
for the deceased's heirs to obtain their fair share
of the business' current value without dissolving its
value as an ongoing business.
Key Man Life Insurance Executive
Coverage
This coverage is designed to protect your business upon
the loss of a key employee. The tax-free proceeds from
this policy can be used to find, hire and train a replacement,
compensate for lost business during the transition, or
finance any number of timely business transactions.
Key Person Life Insurance is often required in order
to obtain funding. Venture Capitalists will want an
assurance that they can recoup their investment if something
happens to the founder of the company, or to the CTO.
Key Person Life Insurance is a way for investors to
protect their investment. Usually, one or two key people
represent the technical genius or creative talent in
a new venture. The sudden death of such a person can
have a disastrous financial affect on the company. It
can weaken the company's credit rating, or require the
sale of a portion or all of the business if there is
no way to cover costs while a replacement person is
found.
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