Catalano Insurance Services

Life insurance can be a powerful tool to use in business applications.  Here are a few concepts for your consideration.

Key Employee Coverage: Does your business depend on the work of one or a few key employees?  What is your plan if one or more of the key employees is no longer alive?  Will the company be sold, transferred, or run by another individual?  Key employee insurance provides cash should the employee die.  The cash can be used for many purposes including the hiring of someone to replace the employee to helping keep the doors open while the transition occurs.  Many times a lender will require insurance on the key employee(s) to help protect loans made to the company.

Non Qualified Deferred Compensation (NQDC): Employee retention can be a key element to the success of the business.  In addition to salary, bonus, group and executive benefits and a 401K, a NQDC plan may be a good choice.  Most employee benefits that are “qualified” have restrictions on “who and how much” is available to the employee.  In a NQDC plan, the rules are different.  The plans are specifically designed to benefit the highly compensated employee(s) who are limited in participation and contribution in qualified plans.  They can provide the company a “golden handcuff” for employee retention and a spousal benefit should the employee die.  When considering these types of arrangements, the insurance agent will need to work closely with your accountant and attorney.

Business Transition:  If you wish to sell your business or your ownership interest, consider establishing a buy-sell agreement funded with life insurance.  A buy-sell agreement gives you the opportunity to determine who takes over the business; whether it be family members, remaining partners or key employees. A buy-sell agreement funded with life insurance can also keep the business stable while business transition is underway.

Exit Strategies: Establishing an exit strategy, no matter how you exit, is one of the most important planning issues facing your business. It protects you, your family, your partners and your employees – a lot of important people.  An exit strategy prepares you to leave your business, whether it happens during life or at death. Your exit strategy should focus upon three key areas:

• Estate Planning: Ensuring your wishes are carried out and you have adequate liquidity for potential taxes
• Retirement Planning: Establishing a plan and reviewing it regularly
• Succession Planning: Protecting your business investment