Business Insurance

This is designed to help your business survive the death of a partner. To preserve the business, many partnerships have a buy-sell agreement, which fixes both the price and terms of the sale in the event a surviving partner buys out a deceased partner’s interest. Life insurance can provide the necessary funds no matter when the partner’s death occurs.

If you are the sole proprietor of your business, you may want to transfer your business to a successor. In this case, life insurance purchased by your heirs can provide funds to pay estate taxes and help sustain the business during the initial period of new management. If your employees are interested in carrying on your business, a buy-sell agreement can be funded with life insurance to assure that your family will receive the optimum value for the business.

We recommend you use life insurance to create a pre-death buy-sell agreement certifying that if a stockholder should die, the remaining stockholders can purchase his/her shares at a fixed price. This will guarantee that heirs will receive cash for their inherited business interest and that surviving stockholders will maintain control of the business.

The small business insurance company will determine the final monthly cost for your group health insurance plan once your application has been reviewed and approved. The insurance company will assess your group using a number of criteria, including the size and location of your company and the ages of your employees, to arrive at the final monthly rate, or premium. As part of the Affordable Care Act, the health of your employees, including pre-existing conditions, no longer impacts group health insurance rates.

Under the Affordable Care Act (also known as “Obamacare”), businesses with fewer than 100 full-time-equivalent employees aren’t required to provide health insurance to their employees and won’t face tax penalties for not doing so. Small businesses, however, may receive tax credits when they provide coverage, as follows

• Employers with 25 or fewer employees with average annual wages of less than $50,000, may be eligible for a special tax credit of up to 35% of the amount the employer contributes (at least 50%) toward employee insurance premiums. In 2014, that tax credit increases to 50% for employers who pay at least 50% of their employees’ monthly health insurance premiums.

Whether you offer health insurance to employees or not, it is absolutely critical that you make your employees aware of their obligation to seek health coverage under the Affordable Care Act. And, you have to let your employees know that they have access to guaranteed coverage in the individual market, and that they may be eligible for government subsidies if the coverage you provide them is not deemed to be affordable under the law.

Beginning in 2015, businesses with the equivalent of 100 or more full-time employees must provide “affordable” health insurance or pay a tax penalty.

Your company will probably be eligible for a small business plan if it meets the following criteria:

• Your company consists of at least two full-time owners, officers, partners, and/or employees, as verified by officially filed state quarterly wage and tax statements (e.g., NYS-45 in New York and DE-6 in California) or annual federal tax return documents.
• Your company is a legitimate business entity (i.e., your company was formed for a purpose other than to obtain insurance), as verified by one of the following documents:
  • A business license or fictitious name filing (for proprietorships and partnerships)
  • Articles of incorporation (for corporations)
  • Articles of organization (for limited liability companies)
• Your company meets the minimum employer contribution percentage set by the insurance company.

• The death benefit can be used to recruit and develop a replacement for the previous key employee
• Coverage is a business asset that enhances your company’s creditworthiness for commercial borrowing
• The policy’s cash value may be available to your business through a withdrawal or loan if needed
• The business pays the premiums, and they are non-deductible

• Entity purchase or stock redemption plan
  • The company itself buys disability policies for each of the shareholders or partners. The company is the owner, premium payer, and beneficiary of the policies.
• Cross purchase or crisscross agreement
  • You and your co-owners agree as individuals to purchase the business interest of any co-owner who becomes disabled. Under the terms of the agreement, you buy a separate disability policy on each of the other co-owners; in turn, each co-owner buys a policy on you. Each of you is the owner, premium payer, and beneficiary of the policies you have purchased.
• Wait-and-see or hybrid buy-sell agreement
  • This allows you to combine features of both an entity purchase and cross purchase agreement.

The greatest advantage offered by using disability insurance with your buy-sell agreement is that you can receive the full value of your business interest if you become disabled before your death or normal retirement. Funding your buy-sell agreement with disability insurance assures that the other co-owners will buy your interest, names the conditions under which they will purchase your interest, and provides the money to pay you a fair price. If your injury is not permanent, disability insurance will provide income protection for your family while you are recovering.

• Small business insurance premiums are not tax deductible. It makes no difference if the payments are made by the business itself or the individual owners.
• Insurance companies may consider you uninsurable–ineligible for disability insurance–due to factors such as your age, health problems, high-risk hobbies, or employment in certain occupations.
• Disability insurance can be used only if you’re sick or injured. There is no policy benefit available if you die or retire from the business when you’re healthy.