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Corporate-Owned Life Insurance

Corporate-Owned Life Insurance

 A corporation can be both the owner and the beneficiary of a life insurance policy. In this case, the corporation pays the premium for the policy and since it is the beneficiary, upon death of one of the covered persons (shareholders), the corporation will receive the proceeds based on the insurance contract. Please note that in most case, the premiums paid for the policy is not tax-deductible (cannot be considered as the corporation expense) but those premiums can still be financed by corporate dollars before tax rather than after tax dollars per person. The insurance proceeds, once received, are not taxable to the corporation. It will be first cost-adjusted and then added to the company’s capital dividend account which then can be paid, tax free, as capital dividends to the shareholders.

Some of the major benefits o consider about corporate-owned life insurance are as follows:

One of the requirements of obtaining loans for small businesses is that the owner should personally guarantee the loan. In some cases, lenders may also require that key people of the business to have life insurance for the duration of the loan. The guarantee to payback the loan will be the liability of the person’s estate which means that the estate will be held liable for any debt that the business cannot pay.
Upon the death of a key person of a company, since, in most cases, it might take some time to find a qualified person as replacement, this will cause problems with efficiency and profitability for the company. Corporate-owned Life insurance in this situation can provide the business with a cash flow required to hire and train a replacement of the key person, pay any debts or settle any issues caused by the absence of the key individual.
In order to avoid the family of a deceased shareholder to get involved with the business, shareholders, by using corporate-owned life insurance proceeds, can trigger the buyout of the shares owned by the deceased shareholder’s estate or beneficiaries.
In a corporation where a person’s share forms a major part of the value of a person’s estate, and the estate has multiple beneficiaries. Upon the death of the person, using the corporate-owned life insurance, the proceeds will be paid via capital dividend, beside paying the beneficiaries their share, it can also fund tax liabilities of the estate and lessen the burden of financial problems it might cause.
Due to mentioned points, it is therefore highly recommended for all corporations and business owners to obtain corporate-owned life insurance and use all the features it can offer. For more information, please contract one of our advisors at Forever Insure. Our expert team is always ready to provide the right consultation to you to help you make the right choice.

Due to the great variety of conditions and facilities in preparing and using any kinds of insurance, it is recommended that you consult with one of our insurance advisors before making any decision. Our expert team at Forever Insure is always ready to provide the right consultation to you and thus help you make the right choice.

For more information, please contact one of our advisors at Forever Insure for a free consultation.
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