Many small-to-medium-sized business owners don't recognize how beneficial a life insurance policy can be to the success of their business. Whole life insurance can help companies break free from traditional bank loans, benefit their employees, and gain tax advantages. In addition, whole life insurance for business owners has an advantage over many other types of insurance: It earns cash value.
This cash value accumulates over time due to interest earned and dividends paid. The business owner has first rights to its accumulated cash value. When business expenses rise, the owner can take a policy loan up to the amount of the cash value in the policy to cover these costs. The capital is then funneled back to the insurance policy, so funds can become available for future business expenses. Instead of paying high-interest rates to a bank, the business owner finances their expenses in a way that allows them to recapture the cost of interest.
A whole life policy can also be part of an exit strategy, if purchased for each business owner. When one owner passes away, the surviving owner can access the death benefit proceeds of the policy, enabling them to buy the deceased business owner's portion of the business. Another reason a business owner needs whole life insurance is to prepare in case one business owner leaves due to illness, disability, or retirement. When this happens, the life insurance contract is simply assigned to the remaining owner(s) which gives them complete access to any cash value, increasing business cash flow.
When it comes to taxes—contractors, freelancers, or anyone self-employed—can benefit from whole life insurance. These self-employed workers are responsible for more taxes, as there isn't an employer covering a portion of their Social Security tax or Medicare tax. The tax advantages of whole life insurance can help offset these expenses.
The tax benefits of whole life insurance for business owners include tax-free retirement income, tax-free policy loans, and tax-free use of cash value growth. Plus, policies earn interest and dividends tax-free. So regardless if you're a large or small business, owning the proper insurance should be one of your priorities. Call us today, and let's discuss ways to maximize the benefits of life insurance for your business.
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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.
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[1] https://paradigmlife.net/blog/5-reasons-business-owners-need-whole-life-insurance