Estate tax and equalization – Important for family-owned corporations where the major part of the value of a person’s estate is within the shares of the company. The estate may have multiple beneficiaries, some of whom are not involved in running the company. Once the estate assets are divided among the family members there may not be enough cash to pay tax on the deemed disposition of shares let alone provide equivalent value to the uninvolved beneficiaries. Paying into an estate via corporate-owned life insurance can fund tax liabilities and equalize the value among beneficiaries.
Loan protection – Lenders require that business loans be personally guaranteed by the owner and in some cases, lenders may also require life insurance for key people for the duration of the loan. It’s a good practice to have life insurance to avoid any debt owed upon your death not become a liability of your estate. Corporate life insurance also improves your business’ ability to obtain financing.
Key person protection – Corporate life insurance can provide a business with the cash flow needed for working capital or to repay debts, or to provide the funds necessary to hire and train a replacement when a key executive dies.
Buy-sell agreements – Corporate life insurance is frequently used by private companies to fund buy-sell transactions that are triggered by a shareholders’ agreement upon death.