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It’s Used for That?


When many people think of life insurance, they think of having a policy to help cover final expenses such as a casket, funeral, and maybe some final medical bills. Others take out a policy to pay off their mortgages. In addition to these common uses, life insurance can be utilized in many other situations. In this blog, I am going to discuss 2 other purposes of life insurance that relate to businesses.


Key person insurance-For many businesses, there is a person or persons who play a vital role in the success of the business. For example, a top salesperson, an office manager, or a person that has a special skill. If one of these key persons were to die unexpectedly, it could be a detriment to the business. A business can take out an insurance policy on the key person. This will provide money to keep the business afloat while the business finds and trains a person to replace the key person. If you are a business owner and you have a person that is responsible for a considerable amount of the company revenue, you might want to speak to an insurance agent about this.


Cross-purchase agreement- If a business partner dies, the surviving partner might not want to be partners with the deceased’s heir. If a business has multiple owners, a cross-purchase agreement should be considered. A cross-purchase agreement is an agreement (many times prepared by an attorney) that lays out how a surviving partner or partners can purchase the heirs’ interests in the business. It typically will include a formula or method to determine the purchase price. Many times, however, the surviving partner might not have sufficient capital to pay off the heir. This is where life insurance can fill this shortfall. Policies can be purchased on each of the partners and the proceeds can be used to provide the cash for the deceased’s heirs.


If you are a business owner, speak to your insurance agent about these issues. How the policies are set up can have major tax implications. It is important that you work with professionals. If you have any questions, feel free to contact me.  I would be happy to talk to you. I can be reached at Birchell Insurance Agency  (http://www.birchellins.com) or by calling 800-978-8813. Thanks, Christian!

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