Insurance Resource

Personal Uses of Life InsuranceContact Us

  • Survivor protection - provides money for dependents.
  • Estate creation - provides large amounts of money for dependents and beneficiaries.
  • Estate conservation - provides funds to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate.
  • Mortgage protection - provides cash to pay off a mortgage loan in the event of a death of the mortgagee. 
  • Cash accumulation - an amount of money accessible to the policy owner.
  • Liquidity - immediate cash available upon death to pay creditors, taxes, and final expenses.
  • Preneed Plan - provides money for parts of or all of a funeral service and burial.

Business Uses of Life Insurance

Buy-Sell Agreement:

This agreement contractually establishes a price with the goal to purchase, at a predetermined price, the assets of a business should one of the contract owners predecease other owner(s) of the company.  This agreement may be used with a sole proprietorship, a partnership or with a corporation.

Some advantages include:

  • It is a legally enforceable agreement.
  • The business value is previously agreed on.
  • The agreement is an immediate and automatic method of transferring the deceased's interest.

Some disadvantages of NOT having an agreement include:

  • Income to surviving family stops.
  • Surviving partner(s) may experience loss of income.
  • Asset may decrease due to forced liquidation.
  • An estate transfer may also be delayed due to forced business liquidation
  • Ownership share(s) transfer to surviving family members.Contact Us

All types of life insurance may be used to provide money for the Buy-Sell Agreements.

There are two types of Buy-Sell Agreements:

  • Cross Purchase Plan - utilized when parties own life insurance on each other or the employer.
  • Entity Plan - utilized when the business purchases  the policies on the parties and is designated beneficiary for each participant.  A closed corporation might purchase policies on the senior or majority stockholders, providing money for the corporation to retain ownership.

Key Person/Man (Key Employee)

  • Life insurance owned to offset expenses and financial setbacks due to the deceased valued employee.
  • Key Person insurance in not designed for employee retirement, supplement or replace group life insurance or affect any present or future group or retirement benefits.  It is implemented to benefit the employer not the employee's beneficiaries.
  • The employee is the owner, premium payor and in most cases the beneficiary.  If the owner is not the beneficiary, then the premiums may be used as a business expense for IRS purposes.  If the owner is the named beneficiary, the premiums are not considered business expenses by the IRS.

Life Insurance Policy Riders

Policy riders are at the option of the owner.  They amendments that modifies conditions of the policy by increasing or decreasing it benefits, or excluding certain conditions from coverage.

Term Riders:

  • Term Riders - may be included in an existing permanent policy to provide an amount of temporary or extra insurance benefits.  They are useful when an insured needs more insurance or a decreasing amount of coverage for a limited amount of time.  For example:  mortgage protection.
  • Spouse Rider - a level term rider added to cover the primary insured's present spouse as named on the application.
  • Child Rider - a term rider that covers one child or several children.  The children are covered up to 14 to 15 days, and may remained covered up to 25 years. Upon reaching the maximum age, the coverage is convertible** without evidence of insurability.
  • Family Rider - the combination of writing both the spouse and child on one policy.  It may be implemented as a policy or rider.
  • Nonfamily Rider - covers an additional insured and must have an insurable interest.

**Convertible - the right to convert to a permanent policy without evidence of insurability.  The premium is based on the issue age.

Disability Riders:

  • Waiver of Premium - the company will waive the premiums on the policy if the owner becomes disabled.  There is typically a maximum 6-month elimination period before premiums are waived. Cash value and dividends continue as under the normal premium payments.
  • Payor Benefit - premium is waived if the premium payor dies or becomes disabled.  It is typically used on juvenile policies or Cross Purchase Buy-Sell Agreements in which the owner and insured are two different people.
  • Waiver of Premium/Disability Income - premiums are waived and the owner is paid a monthly income, such as $10 per month for each $1,000 of face amount if the event of a disability.
  • Waiver of Cost of Insurance - the life company will waive the deduction of the monthly cost of insurance and expenses charges associated with the UL policy while the owner is totally disabled, usually after sixContact Us months of continuous disability.  Typically the disability must occur prior to a specified age.

Benefit Riders:

  • Accidental Death (Double Indemnity) - the policy normally pays double the face amount if death was a result of an accident.
  • Accidental Death and Dismemberment - pays multiple of the face amount upon accidental death, loss of two limbs, or loss of sight.  It will also pay a smaller cash amount as per policy schedule for lesser accidental dismemberment losses.
  • Return of Premium - consists of increasing term insurance equal to the amount of premium paid.  The beneficiary would receive the face amount plus the amount equal to the premiums paid if the insured dies within the term. 
  • Guaranteed Insurability - will allow the owner to purchase additional amounts of insurance at certain specified dates, ages, or events without evidence of insurability.  Premiums are always based on attained age.
  • Cost of Living (COL) - consists of increasing term insurance that increases as the **Consumer Price Index increases.
  • Return of Cash Value - consist of increasing term insurance equal to the cash value.  This provides the funds payment equal to the cash value amount at time of death.
  • Living Need (Accelerated Benefit) - will allow early payment of a portion of the face amount before death if the owner should become terminally ill.  The early payment will be deducted from the benefit paid to the beneficiary.

**Consumer Price Index (CPI) - an index that tracks the price of an average of a group of goods and services included such items as housing, medical care, etc.  It is typically used to measure inflation, or the CPI is also used to track the current cost of living wage adjustments to millions of American workers.  The net result is that CPI is strongly associated with labor costs and housing, two key variables of long term care costs today and in the future.



**The feature icons displayed are a summary for informational purposes only. Review the evidence of coverage and insurance policy (plan contract) for a detailed description of coverage benefits, limitations, and exclusions.**