Do You or Someone You Know Own a Business?
Here are some examples of how Mutual Trust's Business Planning Concepts and MTL whole life insurance can help protect it.
Jim worked at a bakery for 12 years as a pastry chef. Two years ago, he bought the bakery when his boss retired. Business is going well—due in large part to Jim’s trademark chocolate pecan cupcakes. As the sole owner of a bakery, Jim worries about what will happen to his wife and two teenage sons if he were to become disabled or die unexpectedly. Continue reading to see what his MTL insurance representative advises.
Plan of Action
Jim’s MTL insurance representative suggests Jim purchase as much personal whole life insurance on his life as he is able to buy. The policy should include a waiver of premium and a chronic and terminal illness rider, and name his wife as beneficiary.
The policy will provide:
- Guaranteed level premiums, a guaranteed death benefit, and guaranteed coverage for life, as long as Jim pays the premiums. Should Jim die unexpectedly, proceeds from the insurance will give his family time to determine if they can manage the bakery themselves or if they need to find a buyer for it.
If Jim becomes disabled, the waiver of premium rider will keep his policy in force even if he is unable to pay the premiums, and the chronic and terminal illness rider will enable him to accelerate a portion of his policy’s eligible face amount if he is certified by a physician to be either chronically or terminally ill.
- Cash accumulation because cash values accumulate on a tax-deferred basis, similar to other retirement savings plans, and the rate of return is guaranteed. Over the years, Jim can access the cash value from his policy to help pay for his sons’ college education, finance future business opportunities, or supplement his retirement.
Buy-Sell Agreements and Whole Life Insurance
Peter has owned a profitable manufacturing business for over 25 years. He inherited the company from his father and planned to leave it to his son. Three years ago, Peter gave his son 35% of the stock in the business and his daughter 16%. Last year, Peter’s son was killed in a car accident. His daughter-in-law inherited his son’s stock. She and Peter’s daughter recently decided to sell the business because they’d prefer to receive their money now, rather than retain the stock. They jointly own 51% of the stock and are majority shareholders. Peter is very worried about the future of the company and himself.
The Action Plan Peter Should Have Taken
Peter’s MTL insurance representative had advised him before the accident that businesses need a business continuation plan.* He suggested that Peter establish a buy-sell agreement with his son to protect their financial future and the future of the business in the event something should unexpectedly happen to either of them. These buy-sell agreements can be funded with whole life insurance.
The policy will provide:
- A guaranteed market for the business interest.
- Cash for the buyout, exactly when it is needed. (With a buy-sell agreement on his son’s life, Peter would have had the money from the insurance policy to buy out his daughter-in-law’s shares in the company after the accident.)
- Favorable income tax treatment of the buildup of cash value in the policy.
- An increased probability that the business will continue, so it may make the business a better credit risk.
For more information on how these and other MTL Business Planning Concepts can help you and your company, contact your MTL insurance representative today.
*A written agreement is advisable for business continuation plans. You should consult with a legal or financial professional of your choice.
Base Policy Form Nos. 1BJ; 1BP. |
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