Greater Reading Chamber Commerce Quarterly Fall 2017 - 38
hr issues & solutions
Using Life Insurance to Meet
Business and Personal Objectives:
An affordable, tax-efficient, and
often overlooked financial strategy
Presented by Michael P. Hartman, RICP, 1847Financial VP / COO
A
s the owner of a business or professional practice, you
know better than anyone that running your business
seldom leaves you enough time to address important
financial planning questions such as: Is my business moving in a
direction with which I'm happy? Am I doing all I can for my key
people? Have I structured things such that my family won't be
saddled with business debts if I die prematurely? What about taxes
and retirement? Am I doing what's necessary to assure the success
of my business and my personal financial security?
Finding time to reflect on how you're doing, where you're
going, and how you're going to get there (and keeping your key
people happy along the way) is more than just important - it
may also be critical to your business's long-term success and
your family's financial security. Unfortunately, if you're like most
business owners, in addition to feeling squeezed for time, you
probably feel squeezed for money. What's more, you're probably
convinced that there's not a lot you can do to address the above
questions until you have the funds with which to address them.
The reality is - that's not true. You can get started. And the
solution to whichever of those questions is highest on your priority
list may be a financial product you have not only overlooked, but
possibly even avoided - life insurance. How can life insurance
help? There are all sorts of ways.
For starters, life insurance provides both lifetime and death
benefits you can use to protect yourself, your key people, and
your family, while simultaneously accomplishing important
business objectives such as rewarding and retaining key employees,
reducing income taxes, accumulating funds for retirement, and
assuring an orderly succession of your business at death, disability,
or retirement. In many cases, you can use business dollars, often
on a tax-deductible basis, to pay for the policies. You can also
generally choose from a wide range of plans that allow you to
accommodate such variables as uneven (or seasonal) cash flow.
And that's just for starters.
Following are just a few of the strategies that are available to
you - right now, using life insurance - to meet your financial goals
in a tax efficient and affordable manner.
38 COMMERCE QUARTERLY FALL 2017
QUALIFIED RETIREMENT PLANS - If your business
offers a qualified retirement plan (for example, a 401(k), profit
sharing, or pension plan), your contributions/accumulations
can be used to buy life insurance on the participants. Premiums
would be income tax-deductible to your business, and participants
would be taxed each year on a relatively small "economic benefit"
provided by the death benefit. The immediate benefits to you
include a tax deduction for your business; the ability to provide an
extra benefit to yourself and your employees; and protection for
loved ones in the event of premature death.
EXECUTIVE BONUS PLANS - Under these plans, you
and/or your key employees can purchase life insurance and your
business can pay all or a portion of the premiums. The immediate
benefits to you include a tax deduction for your business; the
ability to provide an extra benefit to key employees; and the
potential for supplemental retirement income (via cash values)
down the road. You could also restrict your employees' access
to cash values for a stated period of time, thus creating "golden
handcuffs" that make it more attractive for them to remain with
your company. While participants will owe income taxes on the
amount of premiums paid by the business, you could elect to pay
those taxes yourself via a bonus in the amount of taxes due.
SPLIT DOLLAR PLANS - Split Dollar Plans allow you
to share the cost and benefits of a life insurance policy with
key employees to whom you want to extend an extra benefit.
Depending upon how the plan is structured, your employees
may have access to the policy's cash value, either immediately
or at a designated future time; they may be able to name the
policy beneficiary; the death benefit could be used to purchase
the business interest of a deceased partner or co-owner; and the
business may be able to recover all of the plan costs at the death of
a covered employee.
If your business owns the policy and pays the premiums, the
IRS taxes the plan under an "economic benefit regime." Premiums
are not tax deductible; the "economic benefit" of the death
proceeds is taxable to the employee; but the employee names the
beneficiary for the death proceeds in excess of the cash value. If
your business pays the premiums, but your employees own their
policies, the IRS taxes your plan in the "loan regime" category,
and premium payments are essentially treated as a series of loans
to your employees. Again, premiums are not tax deductible, but
Table of Contents for the Digital Edition of Greater Reading Chamber Commerce Quarterly Fall 2017
Greater Reading Chamber Commerce Quarterly Fall 2017 - 1
Greater Reading Chamber Commerce Quarterly Fall 2017 - 2
Greater Reading Chamber Commerce Quarterly Fall 2017 - 3
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