Life Insurance and Perpetuation Planning in the Manufacturing Industry
Many successful and growing manufacturers have not focused on how the business will perpetuate when leaders contemplate retirement or less welcomed circumstances happen, such as disability or death of an owner or member of the key management team. Ultimately, a perpetuation plan should be created to serve as an integral part of the overall business financial strategy.
Perpetuation plans address how to manage a change in ownership or unforeseen circumstances such as the death of an owner or key employee. In the absence of a perpetuation plan, these events can create a financial crisis and even trigger the need to sell or liquidate the business to respond to creditors or the purchase of shares from a surviving spouse. Effective plans should include Corporate Life Insurance for key employees to provide greater liquidity.
Two common applications of Key Person Life Insurance can include:
- Key person(s) integral to the success of the business. Having a cash value to apply towards a sign-on bonus, recruitment/training costs, research and development, replacement setbacks or lost revenue from losing the key person.
- Business owner/primary shareholder. Upon the loss of an owner or shareholder, the business would be in the position to purchase back the deceased owner’s shares. The policy can help with other financial burdens that might occur based on creditor demands.
A Key Person Life Insurance policy is owned by the business entity on the life of a key individual. In the event of their death, the business would be the beneficiary. Some additional benefits of a corporately owned and properly structured Key Person Life Insurance policy include:
- An assessment of your business, as cash surrender value becomes part of the balance statement.
- The policy’s loan value is generally available without publicity, irrespective of business conditions, money market or credit restrictions.
- Policy cash value can be used as collateral for bank loans.
- Annual increases in the policy’s cash value are not currently taxable to the business with some restrictions.
- Ownership of Key Person Life Insurance can be beneficial in underwriting from banks and creditors.
For more information on Key Person Life Insurance and succession planning, contact a member of the ‘A’ Team today.
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