Financial Strength

Isn’t life insurance just for mitigating risks?

When it comes to managing your business’ financial health, insurance is not just about protection against loss. Few business owners realize this, but you can also use life insurance as a powerful tool to strengthen your business finances. Here’s how…

Collateralize loans

One of the most significant benefits of life insurance for business owners is that it can be used as collateral for a loan. Rather than having to put up personal assets (such as your home) as collateral, you can use a whole life or universal life insurance policy instead. In this case, the cash value that builds up in the insurance policy can be used to guarantee payment should you be unable to repay.

Collateralized loans often have lower interest rates and/or are available for larger loan amounts than those that are not collateralized. The long-term savings from a lower interest rate can be substantial!

Using life insurance as collateral can also increase your credit worthiness overall. Because you are now viewed as being more financially stable, you are more likely to be able to obtain a loan from a top lender that offers better rates. Without collateral, your only option may be to obtain funds at a much higher interest rate from a loan shark or subprime lender.

Life insurance can strengthen your business’ financial position

Beyond securing loans, life insurance can also strengthen your overall financial position. When you have life insurance in place, this adds to the strength and stability of the business. It provides…

• Risk mitigation – Because life insurance creates a financial safety net for your business, this in and of itself puts your business on a stronger financial footing. For example, as discussed above, when you use life insurance as key person insurance, if a key employee dies the payout can help ensure that your business continues to thrive.
• A source of operating funds – Whole life or universal life insurance policies (also known as permanent life insurance policies) build cash value over time. You can access this cash value through policy loans or withdrawals, and use the funds for business investments or emergencies. If Kendra and Sheila’s business had purchased life insurance policies, after using the proceeds from the policy on Sheila’s life to purchase Sheila’s half of the business, Kendra could have used the cash value in her own policy to cover the costs of recruiting, hiring and training someone to do Sheila’s job.
• Funds to pay estate taxes – Depending on the details of the situation and the current status of our ever-changing tax laws, if you die, your heirs may have to pay estate taxes on the value of your business. You certainly don’t want them to have to sell the business in order to come up with the money to do this! Life insurance proceeds can provide the money needed to cover the tax liability, thereby helping to ensure a smooth transition of your business to your heirs.
• Confidence to others – Having life insurance in place can instill confidence in investors, partners and key stakeholders, because it reduces risk and demonstrates your commitment to the long-term success and stability of your business. All of this enables these people to see your business in a different light or through a different perspective.

By strategically incorporating life insurance into your financial planning, you can unlock new opportunities for growth and secure a brighter future for your business.

Conclusion

If you’d like to explore how life insurance can meet your business’s unique needs, please don’t hesitate to reach out to me. This is one of my areas of expertise. As a financial advisor and fiduciary with a focus on working with women business owners, I’m here for you. Let’s talk!

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