A Business Life Insurance
and Estate Planning Guide
Business owners don’t plan to fail…
Often, they simply fail to plan.
SMALL BUSINESS OWNER PLAN FOR SUCCESS Managing Risk
Even if your business is profitable, there are
The Small Business Administration has found
that 70% of the country’s small businesses have
potential risks that could negatively impact your
no succession plan and fewer than 30% pass business.
successfully from one generation to the next. A sound plan for protecting your business
interest should include:
30% Have • Protecting and preserving assets
Have A No Plan
Plan • Removing or reducing uncertainty
• Providing financial security
SOURCE: New York Times “Keeping the Family Happy”, May 1, 2006.
Protecting your business is a big job and fortunately
you’re not alone. A team of professionals can help
you achieve your goals.
Your American General
Your Accountant Life and Accident
Assists in the preparation of tax returns, risk Insurance Company
assessments and other financial transactions.
The services of a qualified accountant are
instrumental in business and estate valuation. Provides life insurance products
necessary to solve your business
Your Attorney continuation, employee retention,
Provides legal counsel, and can help you assess and estate planning needs.
your business insurance needs. An attorney is
responsible for preparing the necessary
paperwork for solving estate planning problems.
The unexpected loss of a key employee or business owner
can cause economic uncertainty and jeopardize the
profitable continuation of your business.
SMALL BUSINESS OWNERS KNOWLEDGEABLE
ABOUT BUSINESS LIFE INSURANCE
National Federation of Independent Business: www.411sbcfacts.com
as of July 2008
Key Person Life Insurance
Protects your business against the financial loss
that may occur at the untimely death of an
individual whose expertise is vital to the
success of your business. Your business is the Life Insurance as Credit
owner, beneficiary, and payer of the life
insurance policy. Protection
Cash value life insurance owned by a
business can be pledged as collateral
Buy-Sell Agreement should the business need to obtain a
Establishes the sales price of your business, loan. In addition, should an emergency
obligates the buyer to buy and the seller to sell
strike, the business can access the
the business in advance. Protects the value of
your business and provides for an orderly accumulated cash value through loans
continuation of the business at the owner’s and/or withdrawals.
death, disability or retirement.
Employee Bonus and Retention Plans
Your business is a valuable asset that needs to be protected.
It is a source of income for you and your family,
as well as for your employees.
I.R.C. Section 162
Your business pays a bonus to a key employee
or business owner* that is used to purchase
Your business and a key employee share the
cost and benefits of a life insurance policy.
Compensation “Take away my factories, my plants;
take away my railroads, my ships, my
Your business utilizes cash value life
insurance to fund an agreement providing transportation; take away my money;
specified benefits payable at a future event, strip me of all of these, but leave me
such as retirement, death or disability of a
my people, and in two or three years
I will have them all again.”
-Attributed to Andrew Carnegie
If used for a business owner, the company would need to be
a C-Corp to take advantage of the tax deductibility of the
This guide provides information on some common business
insurance concepts. The information is general in nature and is
not intended to be legal or tax advice. You should consult your
attorney and tax advisor in regard to your specific situation.
Estate taxes and other costs can significantly reduce the
amount of your estate you are able to pass on to your heirs.
Wills FEW SMALL BUSINESS OWNERS CARRY EXTRA
LIFE INSURANCE ON THEMSELVES
An essential part of every estate plan. It
determines, in writing, to whom and in what
manner your property will be distributed after Do 67%
your death. State law determines how your Don’t
estate is handled if you do not have a will.
Trust Arrangements National Federation of Independent Business: www.411sbcfacts.com
Probate fees and estate taxes can be reduced
or avoided by the use of one or more properly
established trusts. Also, life insurance owned
by a trust can provide funds to pay your estate
settlement costs.1 Life insurance can be used to provide equal
shares of your estate to your children. By naming
the children who are not involved in your
business as beneficiaries at an amount equal to
A 2007 survey of family owned the value of the business you intend to leave to
businesses found that many haven’t your children who will inherit the business, you
have “equalized” the value of your business
prepared for succession or efficient
included in your total estate.
transfer of their wealth. Fewer than half
of these business owners, who expect
to retire within five years, had selected Charitable Gifts
a successor, and nearly a third has
By giving money or property to a charity, you
done no estate planning beyond a will. can reduce the size of your estate. Charitable
SOURCE: Wall Street Journal “Whose Business Will This Be?”
gifts may also be income tax deductible.
March 17, 2008
Are you prepared?
Would your business
• If a key person who contributes
substantially to the profitability of your
business dies prematurely?
• If you were forced to become business
partners with your deceased partners heirs
who either don’t understand the business or
are not interested in the businesses affairs?
• If a vital employee left you for a competitor?
• If you and your spouse co-owned a business
and your marriage ended in divorce?
Prepare for your Future
Begin today by speaking with your
AGLA representative about how life
insurance can be used to protect
your business and help plan for
This guide provides information on some common business insurance
concepts. The information is general in nature and is not intended to
be legal or tax advice. You should consult your attorney and tax
advisor in regard to your specific situation.