Key man Life Insurance simply put, is life insurance on the key person in a business. In a small business, this insurance is usually the owner, the founders or perhaps a key employee or two. Another word, these are the people who are crucial to a business–the ones whose absence would sink the company. You need key man insurance on those people!
Buy Sell Arrangements
A buy–sell agreement is a legally binding agreement between the co-owners of a particular business. It is often referred to as a buyout agreement. A buy-sell agreement controls the situation if a co-owner dies, is forced to leave the business, or chooses to voluntarily leave the business. It serves as a kind of contractual agreement between the business partners and/or shareholders of a company. And, this scenario is funded with Life Insurance on the Partners/Owners.
Cross Purchasing Agreements
In a cross-purchase plan, each owner purchases a life insurance policy on the other owner or owners. Each owner is responsible for the annual premiums on the policy they own and each is the beneficiary of the policy. When an owner dies, the surviving owners use the proceeds to purchase that persons share of the business. If there are a large number of owners, multiple life insurance policies must be purchased by each owner.
Split Dollar Insurance
It’s a pretty simple concept. Split-dollar life insurance is not a type of insurance, but instead a method for dividing premiums, ownership interests, and the benefits of a permanent life insurance policy between two parties. Simply put: An employer sets up a permanent life insurance policy on a key employee, and they split the premiums, cash value, and death benefit. The death benefit is free of income tax for both parties and a split-dollar life insurance arrangement can be used for a variety of reasons.