Helping to Protect Your Business with Life Insurance and Annuities

Life Events

Jim runs a successful technology company. He’s worked hard to grow his business over a number of years, and as the business grew so did the number of employees needed to sustain it. Jim knows that success in business requires careful planning. What would happen if he were to unexpectedly pass away? What would become of the business?

He also worries about retaining good employees, especially a key few who have been instrumental in growing the business into the success it is. What would happen if one of them were to die? How would the organization deal with the loss? The answer may be key person insurance.

Why your business may need key person insurance

As a business owner, you’re faced with many challenges when it comes to running a company. Along with capital, it takes a variety of skills to get a business up and running, let alone to be successful. With all it takes to keep your business running, an important aspect that often gets overlooked is succession planning. Without proper planning, the premature death of a business owner may result in assets having to be liquidated, the business being sold or the business becoming a burden on family members.

Many businesses can identify an employee who is crucial to their continued profitability and success. If you can identify this type of employee, then key person insurance is important to help protect your investment as well as the future of your company.

Key person insurance is life insurance on the key person(s) in a business, without whom the business would struggle. A business may apply for coverage on any key person, and it's an effective way to help keep a business going in the immediate aftermath of that individual’s death or prolonged absence.

Using key person insurance, a business receives money after the employee dies or becomes disabled. These funds can help offset any short-term losses the business suffers as a result of the person's passing, and help give the company an opportunity to rebuild.

How key person insurance works

The business owns and is the beneficiary of a key person life insurance policy. If the insured key person were to die, the business receives the policy’s benefits directly. In cases in which the key person is incapacitated by a disability or other medical issue, it may be possible for the business to access the policy’s cash value1 which can help sustain the business.

Other types of business life insurance

Business life insurance can help keep your business running the way you want:

Executive Bonus Plan – Retain and recruit your best and brightest employees with an Executive Bonus Plan. Under the plan, you provide select employees an incentive by allocating funds for the purchase of a life insurance or annuity product. Your employees will appreciate the ability to obtain a life insurance product they control. You’ll like the immediate income-tax deduction2 for the Executive Bonus Plan and freedom from further administration and/or benefits tracking.

Funded Buy-Sell Agreement – Life insurance on the business owner can help provide the funds to execute a buy-sell agreement if a business owner dies, becomes disabled, separates or retires. Buy-sell agreements can establish business succession plans in advance, including a right to purchase the deceased owner’s share of the business, and determining the value of that share of the business.

Is a succession plan right for your business?

A strong succession plan is as crucial to a business as a positive balance sheet, but too many business owners ignore this area of financial planning. A good succession plan ensures that the business you created will last long after you retire, and can help keep your business and legacy alive if you pass away.

Contact your local Farmers agent today to help you start building your customized life insurance and annuities package for you and your key employees that can help meet the unique needs of your business.

1 Policy loans and withdrawals will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a modified endowment contract, loans and withdrawals may be subject to taxes and penalties.

2 This material is for general informational purposes only and is not legal or tax advice. In general, partial withdrawals from a permanent life insurance policy in excess of the policy’s basis are taxable, and limited circumstances exist where death proceeds will be taxable. Withdrawals or beneficiary proceeds from an annuity in excess of the annuity’s basis may be taxable depending on the type of annuity. The material may not reflect your particular circumstances. Neither Farmers Insurance nor any of its agents, employees, or registered representatives is authorized to provide tax or legal advice. Please consult your tax or legal advisors for advice specific to your situation. Carefully read the contract prior to purchasing any life insurance or annuities. This material presents our general understanding of current law, as tax laws and IRS administrative positions may change. This material is not intended to, and cannot be used to avoid any Internal Revenue Service penalties.

Your Farmers agent may only sell policies in states in which he or she is licensed.

Farmers New World Life Insurance Company is not licensed to sell life insurance, accident and health insurance, or annuities in the state of New York.

Life insurance, annuities and accidental death insurance issued by Farmers New World Life Insurance Company, 3003 77th Ave. SE, Mercer Island, WA 98040.

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