Business Strategies for Small Businesses
As a small business owner with employees who rely on you for income, health insurance, and retirement planning; small business insurance can help ensure the success of your company after you pass away, as well as make the transition easier.
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As a small business, one of the best financial strategies you could have is taking care of your employees.
Employee Benefits
Pre-tax Payroll
Pre-tax deductions are taken out of an employee’s paycheck before taxes are withheld. These deductions are beneficial to both employee and employer because it lowers taxable income. This gives employee a higher net pay than if post-tax payroll.
Life Insurance
Health Savings Accounts
Child Care Plans
Medical Expenses
Group Term Life Insurance
The most common form of group life insurance is under term coverage.
Group term life insurance is a complete employee benefit package usually owned by an employer or labor organization that puts all employees under a single contract.
When starting a job, employees can enroll in employer-sponsored group life insurance.
Group coverage typically costs less than individual protection insurance, and is recommended if an employer offers it to you.
Group life insurance typically doesn’t require an assessment under an employer.
Businesses or organizations that use group life insurance benefit from tax breaks while also protecting their employees.
Supplemental Life Insurance
Depending on the company, employees may be given the option to purchase life insurance through a supplemental life insurance plan.
Some employers may offer accidental death policies or give you the option to customize your group life policy.
This type of insurance requires an Evidence of Insurability Form that could have a medical questionnaire.
Group Health Insurance
Similar to Group Life, this type of insurance protects employees under an employer policy at a monthly or annual rate.
The family members or dependents of employees can be added to group plans at an additional cost.
Employees have the option of accepting or declining group health insurance from their employer.
Retirement Plans
Employer Sponsored Individual Retirement Accounts (IRA’s)
are typically offered to employees at no, or fairly low cost.
Plans can cover a variety of services but most commonly include retirement savings and healthcare.
Enrolling in employer-sponsored IRA’s offers automatic retirement saving while providing a tax break for employer and employees.
Indexed Universal Life Insurance (IUL’s)
helps you build wealth while adding to a death benefit for your loved ones.
When purchasing an IUL policy, a portion of the premium payments are put towards annual renewable term life insurance.
The remainder is added to the cash value of the policy on a monthly or annual basis.
The policy is credited with interest using the equity index causing a benefit of tax-free market gains.
Your IUL offers permanent coverage so long as your monthly or annual premiums are paid.
Deferred Annuities
Are a contract with an insurance company that is most commonly used to build income for retirement through one large payment or smaller monthly or annual payments through the years.
Deferred annuities earn interest with time before they can be withdrawn from.
There are three types of deferred annuities
Fixed annuities
come with a promise of a specific rate of return on the money in the differed annuities account.
Variable annuities
have a rate of return that is based on the performance of a portfolio of mutual funds or sub-accounts, chosen by the annuity owner.
Indexed annuities
promise a rate of return based on the performance of a particular market index.
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Special Strategies
Key Person Insurance
Also known as ‘keyman insurance’, a business or corporation buys a life insurance policy on the life of the owner, a top executive, or someone critical to the business.
In this case, the company is the beneficiary of the policy and pays all the premiums.
It is recommended to have this insurance if there is a person who’s death would devastate the company.
The death benefit buys the company time to find a new person or owner, implement strategies to save or shut down the business.
This insurance also protects shareholders and enables them to possibly purchase the shares of the deceased key-person.
Buy/Sell agreement
A legally binding contract that is often also known as a business prenup; which describes what were to happen to the shares of a partner in the event that said partner dies or wants to leave the business.
Most commonly, this agreement enables the shares to be sold to remaining partner/partners.
Partners must establish a way of determining the value of the business entity.
Cross-purchase agreements allow partners to buy shares of deceased partner(s).
Redemption agreements allow the business to buy the shares of deceased partner(s).
