BUSINESS USES OF LIFE INSURANCE (Life Producer)

Split-Dollar Plan

Is an arrangement where an employer and an employee share in the cost of purchasing a life insurance policy on the employee. It is a method of buying insurance, not an insurance policy itself. Many times it is a combination of term and whole life insurance.

Buy-Sell Funding for Close Corporations

Similar to partnership cross-purchase plans, a close corporation cross-purchase plan requires surviving stockholders purchase the deceased stockholder's interest in the company, and the deceased stockholder's estate sell the interest to the surviving stockholders. The corporation is not part of the buy-sell plan. Each stockholder owns, pays the premiums and is the beneficiary of life insurance on each of the other stockholders in an amount equal to his share of the corporation's purchase price.

Close Corporation Stock Redemption Plan

Similar to the partnership entity plan, the corporation purchases, is the owner, pays the premiums and is the beneficiary of life insurance policies on each stockholder. The amount of life insurance is equal to each stockholder's share of the corporation's purchase price. When a stockholder dies, the corporation purchases, or redeems, the deceased stockholder's share.

Key Person Insuranc

The purpose of ____ _______ ________ is to prevent the financial loss that may ensue when an owner, officer or manager dies.

Buy-Sell Funding for Sole Proprietors

There is a two-step business continuation plan to keep the business running after the proprietor's death, whereby the employee takes over management of the business:

Buy-Sell agreements

also known as business continuation agreements and are used to assure the ownership of the business is properly transferred upon the death or disability of an owner or partner.

Buy-Sell Plan

an attorney drafts a buy-sell plan stating the employee's agreement to purchase the proprietor's estate and sell the business at a price that has been agreed-upon beforehand.

Buy-Sell Funding for Partnerships (Cross-purchase plans)

each partner buys, pays the premiums, and is the beneficiary of a life insurance policy on each of the other partners. The amount of the policy is equivalent to each partner's share of the business. When one partner dies, each of the other partners receives the death benefit from the life insurance on the deceased partner, which is then used to buy the deceased partner's ownership of the business.

Deferred Compensation:

is an executive benefit an employer can use to pay a highly paid employee at a later date, such as upon disability, retirement or death.

It pays for finding and training a replacement if the key employee dies prematurely The company purchases, owns, pays the premiums and is the beneficiary of the life insurance policy on:_______________. The premiums are not deductible for income purposes. However, the death proceeds received by the business are not taxable.

the key person

Buy-Sell Funding for Partnerships (Entity plans)

the partnership itself agrees to buy the deceased partner's share of the business. _______ plans are best for businesses with several partners. In this case, the business purchases, pays the premiums and is the beneficiary of life insurance on each partner.

Salary Continuation Plan

works the same as deferred compensation except that the employer funds the plan rather than the employee. The employer establishes an agreement, whereby an employee will continue to receive income payments upon death, disability or retirement.

Insurance Policy

he employee purchases a life insurance policy on the life of the proprietor. The employee is the policyowner, beneficiary, and pays the premiums. Upon the proprietor's death, the funds from the policy are used to buy the business.