Offering whole life insurance at your business benefits more than just your employees. It can help you gain independence from bank loans and also has tax advantages. At IBC Global, Inc., we help small businesses, large corporations, and medical practices implement corporate-owned life insurance policies. Learn the top five benefits of investing in this insurance product.
Ideal Investment for Business Capital
Unlike other types of insurance, a whole life business policy produces cash value. Additionally, the cash value earns interest and may receive dividends. Mutual companies pay out dividends on what they earn during the course of a year and have a long history of stability.
Both business and individual whole life insurance policyholders can borrow against the accumulated cash value on their accounts. When you pay back the loan, it becomes available for future use. This creates incredible leverage for business owners looking for flexible lending options. Best of all, most policies allow you to take out multiple loans annually.
So, instead of paying interest on a banknote, you can finance business expenses with a whole life insurance policy (I removed “recaptures the interest”. I’m not a huge fan of that terminology as some view it as misleading). Also, insurance carriers typically charge lower rates than financial institutions.
Great Way to Attract and Keep Employees
By offering whole life insurance at your business, you can create “insurable interest.” These policies are based on a potential loss to the company if a key team member passes away. Employers can then offer life insurance as an employee benefit.
When you pay the premium for your employees, you receive a tax benefit. Your company can also use the cash value that accumulates on the business insurance account. Either the business or someone designated by the employee can act as beneficiaries for covered team members. Plus, offering whole life insurance helps you attract and keep valuable employees by offering a potential income benefit to them in retirement.
Use Whole Life Insurance to Create a Business Succession Plan
When a business partner passes away prematurely, your business may lack the funds to continue operations. Even if the estate plan of the deceased partner takes the company into account, it can take some time to settle an estate.
Business succession plans that incorporate whole life policies are sometimes called “buy-sell agreements.” These companies provide the funds needed to buy out the deceased partner to keep the business going.
The cash value can also be used to cover situations where one business partner has to leave due to disability, retirement, or illness. The remaining owner or owners will retain control of the cash value of the commercial whole life policy.
Protection Against Loss of a Key Person
Offering whole life insurance at your business can also create a “key person” policy. This protects your business against the loss of a key employee or business partner. The death benefit of this type of policy provides capital that can offset the gap left by a key person. You can use this capital to find a replacement to keep the business going.
Unique Tax Benefits
Commercial whole life policies create an opportunity to grow wealth tax-free. This is true for both individual employees and the business as a whole. However, it takes careful planning to use the money appropriately and avoid tax consequences.
Whole life policies earn interest and dividends that aren’t subject to taxations. Additionally, the death benefit itself has tax benefits.