As your business grows, you will
have needs to protect, and ensure your endeavor. Your Ziegler financial
advisor can help you determine what your needs are, and the best
products to fulfill your needs.
death of a key employee can be very disruptive to business operations
and it can adversely affect corporate earnings. In addition, the costs
for identifying hiring and training a replacement can be high. An
average hiring cycle runs from two to four months, and the replacement
may demand a higher salary. Key employee insurance can help you weather
these financial storms.
To insure against the death of a key
employee, the company purchases an insurance policy on the life of the
key employee. The company is the premium payer, the owner of the policy
and also the beneficiary of the policy. The monetary worth of the
employee is determined from such factors as the cost to replace the key
employee, the employee’s salary and the employee’s contribution to
The death benefit and cash surrender value are
payable to the company. If the key employee lives to retirement, the
company can use the cash surrender value to fund a non-qualified,
deferred compensation plan for the employee. The death benefit can be
used even if the employee lives to retire. The employee’s death during
retirement can fund a payment or income stream to the surviving spouse.
premiums paid by the company are non-deductible, but the death benefit
proceeds are tax-free, although the alternative minimum tax may apply).
a small business owner becomes severely injured or disabled, the
company must continue to pay operating expenses such as rent,
utilities, and employee salaries. Individual disability policies only
supplement the small business owner’s personal expenses. Without a
business overhead insurance policy, the owner could be forced to use
personal assets to fund ongoing business expenses. Business overhead
insurance provides the owner with peace of mind that operating costs
are covered during disability.
A business overhead insurance
policy outlines the costs covered and the dollar limits of coverage.
The premiums for these policies are tax-deductible, but the benefits
received are subject to tax.
split dollar life insurance policy is not a specific type of insurance,
but rather it is an arrangement that splits ownership between the
company and the employee. Typically, the company “owns” the cash value
of the policy, and the employee “owns” the death benefit. Split dollar
policies are frequently used to fund deferred compensation plans – the
accumulated cash value is used to provide income to the employee after
retirement. If the employee dies prior to retirement, the employee’s
heirs receive the death benefit.
A potential pitfall is the need
for the employee to declare the cost of insurance as income to avoid
future adverse tax consequences. You should contact your tax advisor
when considering these types of policies as the IRS has recently issued
final Regulations and Notices on the taxation consequences of split
dollar life insurance policies.
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