Whole Life Insurance for the
Small Business Owner

Executive Deferred Compensation

As the owner, you are considered 'highly compensated' from the Department of Labor related to top heavy testing for qualified plans. Even if you have a safe harbor plan, most the amount you're limited to contributing, both as an employee and employer, typically is not enough to provide the type of lifestyle in retirement you've come to enjoy. A properly structured Executive Deferred Compensation Plan can allow the business owner to save more for retirement on a tax favored basis.

Buy-Sell Funding

When forming a Buy & Sell agreement with partners, I advise to consider the likely outcome of neither partner dying. Funding a Buy-Sell agreement for death certainly makes sense, but what if you don't get 'lucky'. What happens when the business continues to 'bear fruit' until you're ready to retire? Wouldn't it be nice to have created a sinking fund where the remaining partner could access to execute a living buy-out? Whole life insurance provides a tax favored method of not only funding the buyout in case of death of one of the partners, but also provides a consistent vehicle to accumulate funds for the living buy-out.

On Going Concern?

Unfortunately, due to the lack of Estate Planning by the business owner, most small businesses I see will dump the responsibility of running the business on the surviving spouse. In most of these cases, the surviving spouse is not an employee, is not familiar with the business, and doesn't have the key relationships necessary to maintain the business as an on-going concern. Quite simply, whole life insurance provides the surviving spouse time. Time to make payroll. Time to find a buyer. Time to take care of the family. Time to consult with other advisors.

Read Bill Olmsted's Other Articles

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