Financial professionals

Three ways term insurance can help protect your business

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With an affordable pricing structure and the ability to convert to a high quality permanent policy, there’s a variety of ways AuguStar Life’s Term Plus policies can go to work for business owners.

Here are three.

Prepare for business continuation

A buy-sell agreement is a contract providing for the sale of a business ownership interest when a specified event occurs — generally, the death of one of the business owners. Term life insurance can be an ideal, budget-friendly funding vehicle in a buy-sell agreement.

If an owner dies, the death benefit proceeds can be used to help purchase the business interest per the buy-sell agreement.

Each owner might consider an affordable term policy with a face amount large enough to cover the agreed-upon purchase price (subject to insurability factors like age and health of the insured).

A fully funded buy-sell agreement can help:

  • Predetermine the price at which the buyer agrees to purchase, and the owner agrees to sell, their interests in the business
  • Create a market for each owner’s share of the business
  • Provide money to fund the purchase at the exact time it is needed
  • Establish the business’ value for federal estate-tax purposes

Protect against the loss of a key employee

Successful businesses are built on a variety of assets including equipment, inventory, real estate, accounts receivable, cash, goodwill, but most importantly, key people. The death of a key person could have a devastating effect on the future of your business.

A key person is anyone who significantly contributes to business success and whose death would result in a tangible loss to the business. Key person insurance helps to cover your business for the death of a key person and the loss of that individual’s skill and expertise.

To put key person protection in place, a term policy is purchased with a death benefit amount based on the employee’s value to the organization (most often, a multiple of salary). The business is both policy owner and beneficiary. Should the key person die, the death benefit proceeds are used to offset business losses such as sales, productivity, and credit.

Reward your key employees with a fringe benefit plan

To attract and keep innovative, quality people, you need to offer quality fringe benefits. Fringe benefits don’t have to be difficult or complicated. In fact, a simple plan can often be the best.

An executive bonus plan allows you to choose the participants in the plan and is typically simple to administer. The key employee owns the policy and selects a beneficiary, and your business pays the premium directly or indirectly through a salary bonus. The bonus amount is typically tax deductible by your business as an ordinary and necessary expense. The same bonus amount is taxable to the employee as ordinary income just like any other cash bonus. In addition, you always have the option to increase bonus payments to offset your employee’s income tax liability.

You can start the plan using an AuguStar Life Term Plus policy. In later years, the employee has the option to convert the term policy to permanent insurance.

We can help

We can help you use term insurance to protect your business. Contact your financial professional about business planning today.

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.

FlexTerm Series XII policies ICC18-TR-1/1U, Plus ICC18-TR1.P/1U.P) and any state variations are underwritten and issued by, and guarantees based on, the claims-paying ability of AuguStar Life Assurance Corporation. Premiums are based on the age of the insured at nearest birthday and specified underwriting classification and is subject to change without notice. Premiums for issued policies may be different than a quote premium based upon actual underwriting classification. The premium stated in the policy is guaranteed to remain level for the term of the policy. Term products convertible to the end of the level term period or to the policy anniversary date nearest the insured’s 70th birthday, whichever occurs first. Conversion options vary by term product. The policy includes certain limitations during the first two policy years.

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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