Financial professionals

Surprising ways business owners use life insurance

Two business women working in a shop

You know your business inside and out, but do you know all the ways you can use a life insurance policy to protect or grow your business?

Most think it’s a policy that pays a death benefit to your loved ones when you die. And they’re right. But life insurance can also be useful for business owners in ways you may not have considered.

Here are a few ways life insurance has proven to help business owners meet challenges and work toward building their business.

Protecting your business against loss

Many business owners know life insurance can protect families if a primary breadwinner dies, but it can also help protect your business if a key employee dies. You may have employees who help drive your organization or bring in crucial sales. What if suddenly they were gone?

Many employers use life insurance to protect their businesses from the loss of a key employee. Key person insurance is a policy that makes your business the beneficiary of a death benefit to provide needed income as you make a very difficult transition after losing an important employee.

Securing a loan

One way a business owner can use life insurance is to help secure a business loan. Certain banks and lenders may allow you to list life insurance as an asset when being considered for a loan. Other lenders may allow a collateral assignment, where a business owner with a life insurance policy collaterally assigns the policy to the bank/lender.

If you die, the bank receives their portion of the death benefit based on your loan collateral agreement, covering some, or potentially all, of your loan amount. This can reduce your risk as a borrower and play a role in securing a potentially lower loan interest rate.

Saving for a rainy day

Permanent life insurance policies build cash value within your policy as you pay premiums. This cash value can serve as a rainy-day fund in lean times for your business because you can take out loans1 from the life insurance policy against that cash value.

There are less credit score worries for your business to qualify for a loan, because the life insurance company will use your cash value as collateral. The loan will likely have a significantly lower interest rate than what you can secure from a bank.

Sweetening the pot for your employees

Many business owners use life insurance as a fringe benefit to valuable employees. From executive bonus plans to split-dollar agreements, life insurance can be used to recruit, retain, and reward valuable employees who are crucial to the success of your business. And because it’s not a qualified benefit like a 401(k) plan, you can determine who is eligible without having to offer to all employees.2

Leverage to meet challenges ahead

Many business owners like you have been able to leverage the features and flexibility of life insurance to meet challenges head on and keep their businesses moving in the right direction. This isn’t a solution you should work out on your own though. Your financial professional can help you determine which life insurance policy could help you meet your specific needs, budget, and circumstances. 

1If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Always consult with a tax advisor regarding your particular situation.

2Consult a tax/legal professional for guidance; conditions apply.

This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.

Products are issued by AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.

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