Life insurance plays a vital role in structuring and funding buy-sell agreements, retaining and motivating key employees, and business succession planning, to name a few.
Different businesses have different concerns, of course. During COVID the commercial real estate market was affected much differently than commercial farming operations.
In the construction industry business succession planning and life insurance go hand in hand. Construction companies must obtain surety bonds for government contracts and large private contracts. Before a surety bond is issued the provider will want to see a well-defined business continuation plan. To that end the business should have a well-designed and funded buy-sell agreement along with a risk management solution such as a Fixed Index Universal Life insurance policy (FIUL) for key employees and owners.
An FIUL policy may be the answer for those in the agricultural industry where family-owned operations predominate. Succession planning is very important for these businesses, and an FIUL policy can provide extra cash for buyout agreements between family members, or to evenly split inheritances to children that choose not to farm.
Irrevocable life insurance trusts (ILIT) and Spousal Lifetime Access Trusts (SLAT) may make sense for those in the commercial real estate business. Often, those involved in this industry owned another business before entering commercial real estate. The proceeds from the sale of the previous business are invested in real estate. Their business today is more of an investment, and they possibly don’t want to pass the business intact after they are gone. With ILIT and/or SLAT funded with an FIUL policy, the heirs may use the death benefit to pay property taxes, estate taxes, insurance and other expenses until the properties may be sold at the best price.
In the farming industry things like weather, international demand, and commodity prices are a constant concern year after year. A SLAT funded with an FIUL policy offers death benefit protection yet allows the owner access to cash value through withdrawals and loans on the policy through their spouse.
Funding key employee benefits such as bonus plans, non-qualified deferred compensation, phantom stock, and split-dollar plans may all be accomplished with the help of an FIUL policy.
From a tax standpoint many business owners may be attracted to the tax efficient aspects of FIUL policies.