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Business Planning

Are your personal and professional finances closely linked? How do you maximize opportunity and minimize risk? Our business continuation strategies are designed to help business owners with a broad array of plans, including succession planning and exit strategies.

Implementing the right business strategies means you are more likely to be free of worries and able to concentrate on your business goals and dreams.

Whether you are looking for insurance, retirement products and services or investments, part of what you'll need to consider will be uplifting — like rewarding your employees and top executives with benefits and bonuses. And, part of what you'll need to manage is the unexpected — like maintaining business continuity during a disability of yourself or one of your employees, or upon the death of a business partner.

Business Continuity

Illness or injury, whether your own, a business partner's or an employee's can derail your business. The solution is to prepare now, especially by considering that business expenses will continue during and after an unexpected disability.

You shoulder a lot Business Continuity a personal disability income insurance and a buy-out agreement funded by disability income insurance help solve part of the problem when disability strikes a business owner Business Continuity namely, it helps to replace the business owner's income.

Additionally, business expenses — payroll, rent and utilities — will continue while the disabled owner is recovering. In preparation and management for these situations, business owners need additional protection to help meet routine business expenses.

Business Overhead Expenses Protection provides a solution — in the form of cash — to the business upon the disability of the insured owner to cover routine business expenses. This policy reimburses the owner for covered business overhead expenses up to a specified limit on a monthly basis during disability. Additionally, the policy can help assure the company employees that — in the event of the owner's disability — the business will continue to operate and their jobs will be secure.

Incentives for Key Employees

Often time employers look for those little extra things they can do for key employees. Nearly every business has key employees who are critical to the overall success, profitability and management of the business. There are many ways an employer may use life insurance as a means to provide an extra incentive for key employees … key person insurance, executive bonus and deferred compensation.


Buy-Sell agreements and their funding are critical to a smooth transition of business ownership from one party to another. As a business owner, a buy-sell agreement provides a ready market for what is typically an asset without a public market. Without a buy-sell agreement, a deceased business owner's estate may be stuck with an illiquid business interest that may not be easily sold. A buy-sell agreement, properly funded with life insurance, is an ideal alternative to insure the business owner's illiquid business interest is converted to cash for the family.

Executive Bonus Plans: Simple and Effective

As the owner of a closely-held company you understand the critical importance that key employees play in the success of your business. In addition to paying an attractive salary, you must offer a competitive benefits package to recruit talented people to your organization and provide additional perks to retain and reward them.

For example:

A qualified retirement program such as a 401(k) plan is a fairly common employee benefit but often it is insufficient by itself to provide the level of benefits that executives expect from their employer. Qualified retirement plans are subject to significant rules and regulations that limit the annual contribution amounts, may restrict highly compensated employees from contributing, and prohibit employers from picking and choosing which employees may participate. Indeed, as a business owner, you may sometimes find your company’s benefits package lacking for your own personal needs.

So, what other option do you have for providing extra benefits to executives and key employees to help recruit, retain and reward them? The answer is: a nonqualified executive benefit plan.

Unlike qualified retirement plans, nonqualified executive benefit plans allow you to select the employees that you wish to cover and exclude others. These plans provide for supplemental sources of retirement income, as well as risk protection from death. The contributions that you may make to nonqualified plans are not set by the government but by business objectives. Also, the administrative requirements are nominal compared to qualified plans.

Among nonqualified executive benefit plans, the most popular is perhaps the Executive Bonus Plan. Its popularity is due to its simplicity, relative lack of restrictions, and tax benefits to the employer.

As a Business Owner, Why Would You Choose to Implement an Executive Bonus Plan?

An Executive Bonus Plan using permanent life insurance is the simplest form of an executive benefits program. It is easy for both employers and employees to understand. Why? An Executive Bonus Plan is simply a personally owned permanent life insurance policy paid for by the business resulting in a tax deduction for the business. No IRS approval is necessary. The plan does not fall within the requirements of ERISA-like qualified retirement plans, and there is virtually no administration or costly accounting or legal fees to create or maintain the plan.

An Executive Bonus Plan offers your business a great opportunity to provide select key executives (including, in some cases, yourself as a working owner) and employees, valuable life insurance coverage with tax deferred cash value accumulation.

Executive bonus plans can help employers reward select employees, supplement existing benefits plans, stimulate better employee performance, provide a cost-effective benefit replacement for group term life insurance and minimize reporting requirements.

Under an Executive Bonus Plan (also known as a Section 162 Plan), the employer provides a bonus to select employees in the form of cash or in the form of premiums on life insurance or disability policies on the employees' lives. The executive receives the bonus as taxable income; and the employer is provided with a business tax deduction assuming the bonus qualifies as reasonable compensation to the executive.

Executive Bonus is different from key person insurance because it is employer-financed personal life or disability insurance intended to benefit the selected employees, where as key person insurance is intended to protect the business from losses resulting from the employee's death.

By providing a bonus to select employees, an employer is able to provide additional compensation to certain employees and deduct the premiums for a policy on the employee's life or disability insurance (provided it qualifies as reasonable compensation).

With life insurance, the death proceeds are usually received income tax-free by the employee's beneficiary and with disability income insurance benefits are generally received income tax free by the employee.

Benefits to the Employer:
  • The bonus plan is simple to create

  • The bonus amounts are tax deductible for the business (subject to reasonable compensation limits)

  • The bonus helps the employer attract, retain and reward key employees

  • The employer has flexibility in bonus amounts

  • There are no government limits on funding; the plan requires no IRS approval and entails minimal ERISA requirements and negligible administration

Benefits to the Executive:
  • The executive owns the insurance policy

  • The executive incurs little out-of-pocket cost

  • The executive gains tax-deferred growth of the cash value, which can be used to pay for a child's education, retirement or other purposes

  • The death benefit will be received by the executive's beneficiaries income tax-free and possibly estate tax-free

Key Person Plan

As a business owner you cannot do it all. You rely on a few key employees who help make day-to-day operational decisions, who play a key role in obtaining credit with a financial institution or who oversee all sales activities. Losing one of these key employees could set you back.

Key person life insurance provides life insurance protection on the life of a key employee and is purchased to help reimburse the business owner from economic loss caused by the death of the employee.

The insurance may be purchased and used for key person insurance to help bridge the gap of the lost revenue or increased expenses due to a loss of a key person. This would allow the business to continue to operate and provide the funds necessary to recruit a new employee to take over the key person's functions.

By using life insurance, the death benefit would be available to pay for an employee search, pay that person's salary and create a cash cushion for the business during this trying time. The life insurance can also guarantee a specific death benefit precisely when the money is most needed, provide tax deferred accumulation of cash value and minimize the impact on the business's financial statements.

Satisfying Debt Obligations

Many business owners finance the expansion and growth of their business through bank loans. However, many financial institutions may require life insurance on the owner of the business to secure or collateralize this debt. In case of the death of the business owner, the lending institution would recover its loan from the death benefit. A life insurance policy may provide the death benefit necessary to fulfill this obligation. The policy may be owned by the business or by the business owner individually with a collateral assignment of the policy to the financial institution. To the extent the proceeds exceed the debt, the owner of the policy can name a beneficiary for the remaining death benefit.

Split Dollar Arrangements

Split dollar arrangements let a company provide significant life insurance and retirement benefits to key employees with funds that the company can eventually recover.

Businesses often use non-qualified retirement plans as special rewards for top executives. Split dollar arrangements are one example: they let business owners fund the purchase of life insurance on an executive using corporate dollars that can later be recovered. Split dollar arrangements are an excellent way to provide benefits to non-shareholder executives or even the business owner.

With a split dollar arrangement, the employer advances the executive the premium on a life insurance policy and the two share the cash value and death benefit. Generally the employer has rights to the cash value and death benefit, equal to the greater of its cash advances or cash value of the policy, and the remaining balance goes to the executive.

The life insurance policy premium is not tax deductible for the employer and is not included in the executive's gross income. The executive gets a financial benefit equal to the term value of the death benefit, so he/she must pay income tax on that economic benefit. Under certain circumstances, excess cash value may be included in the executive's income.

It is also possible to establish a split dollar arrangement using below market rate loan rules. This method is generally used when it is important for the executive to control the cash values of the life insurance policy.

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