How Can Life Insurance Help?
With its promise of autonomy, unlimited earnings, and high potential, entrepreneurship is a hallmark of the American economic system. The latest wave of entrepreneurial growth in the US is being led by talented, success–minded African Americans.
In the May 6, 2003 issue of the New York Times Daniel Altman opened his article "Young Blacks Try Entrepreneurship" by explaining, "...across the country, more young black professionals are stepping off the corporate ladder to become entrepreneurs. Joining a big company used to be perceived as the surest route to material success...but lately, owning a business has become as attractive, or more so."
In the same month, Fortune Small Business published "The Next Black Power Movement" an article by David Dent that cites a study in which African American men between 25 and 35 are more likely to start businesses than any other men in this age range.
Also in 2003, a total of 285 companies comprised Black Enterprise magazine's annual ranking of the largest African American–owned industrial/service firms, auto dealerships, advertising agencies, banks, insurance companies, asset managers, and private equity firms in the country. The 2002 revenues for the top 100 industrial/service firms and the leading 100 auto dealerships alone were $20.9 billion, an increase of $600 million over 2001.
Latest National Figures
According to the latest numbers available from the US Commerce Department's Census Bureau, minority–owned businesses have been growing four times faster than the national average. The Department's report, 1997 Survey of Minority–Owned Business Enterprises: Black, drawn from the same data, shows figures for African American–owned businesses by size, type of business, and geographic area, comparing 1997 to 1992 results.
During this period, the number of African American–owned businesses, excluding C Corporations, rose by 26 percent, reaching a total of 823,500, while the number of businesses in the US overall grew by only 7 percent in the same time period. In 1997, African American–owned businesses employed 718,300 people and generated $71.2 billion in revenue.
And 38 percent of the nation's African–American–owned firms are owned by women, a higher percentage of female owners than any other minority race or ethnic group. Source:US Census Bureau
If you're in this powerful and growing group of professionals, you know autonomy and financial independence have great appeal. You may not know that life insurance can play a role in helping to secure these qualities of life for you and your family.
Insurance–based Solutions for Business Owners
Life insurance can play a variety of roles in the smooth operation and continuation of a business. It may be included in an executive or employee benefit program and/or used as a means of safeguarding a business's financial future.
- A Key Employee life insurance policy can help you protect your family by keeping your business strong and stable. Every business owner fears the loss of a key employee. The implications are significant: operations may slow down. Sales might suffer. Key clients may take their business elsewhere. At such a time, life insurance benefits from a Key Employee Insurance policy can help ensure the ongoing smooth operation of the business, perhaps by being used to find and hire a replacement employee or even to temporarily outsource the services the key employee was providing.
- Life insurance may be used to fund a Buy–Sell Agreement which protects the owner's family and their interest in the business by enabling the business to continue operations in the event of the premature death of its owner. A Buy–Sell Agreement is not an insurance policy, but rather a legal document backed by insurance. A Buy–Sell commits partners, stockholders or the business to take control of the company at the owner's or stockholder's death at a specific price, and life insurance proceeds enable them to do so.
- An Executive Bonus Plan may enable you to pay for personal life insurance while offering special benefits to selected employees. In essence, Executive Bonus plans provide the means for a business owner to use tax?deductible dollars to pay life insurance premiums for an employee, including an owner–employee. For the business owner, life insurance proceeds may help pay estate settlement costs, provide a source of income for the family, or fund a business continuation agreement.
Executive Bonus may also enable the business owner to do something special for a key employee, perhaps to provide an incentive to remain with the company. If whole life insurance is used to fund the plan, the employee gains both a pre–retirement death benefit and the potential for supplementary retirement income by accessing the cash values* in the policy, if they are available.
- Recent legislation has limited, in some cases substantially, the appeal of Split Dollar Arrangements. For eligible employees, however, they are advantageous. They may help employers retain key executives and employees in a way that benefits both the business and the employee.
- A Non–Qualified Deferred Compensation Plan supplements the retirement benefits available to employees through their qualified retirement plans. Non–Qualified Plans enable an employee or owner?employee to defer a portion of current compensation (either by reducing current salary or deferring a raise) in exchange for the employer's unsecured promise to pay compensation at some predetermined point in the future.
Because these plans are non–qualified, they are not subject to the antidiscrimination rules that apply to qualified retirement plans. Thus, the selection of covered employees is generally unrestricted and may include the business owner. In addition, there are no limits on the amounts that can be set aside as there are in qualified plans.
- Life insurance can help business owners looking for strategies to help them pass their estates equally to their heirs. In a family–owned businesses, often two or three children are in the picture, not all of whom are involved in the business. How will ownership of the family business pass to the next generation? By generating a death benefit equal in value to the business, life insurance can provide funding at death for equalizing inheritances to all heirs. If the business is worth $500,000 for example, the owner can buy an insurance policy for the same amount and have that insurance policy pay the other children an equivalent amount in cash.
Survivorship Whole Life (SWL) can be particularly suitable in these cases. SWL is a permanent life insurance plan that insures two lives under one policy. Since it pays a death benefit only after both insureds have died, premiums are much lower than the cost of two separate policies.
*Cash value is accessed via policy loans, which accrue interest at the current rate and reduce the death benefit.
To learn more about how life insurance can help secure the future of your business, contact your local New York Life agent for a no cost, no obligation consultation. Click here to find a New York Life agent in your area.
Key Facts About Your Business Your Agent Will Want to Know
- When was the business founded?
- Is the business incorporated? If yes, is it an S Corp or a C Corp? Number of shareholders and the shares owned by each, including the head of the business.
- If the business is not incorporated, what is the structure: sole proprietorship, partnership, educational or religious institution?
- What is the business' tax status: profit, not–for–profit health, educational, philanthropic, religious, etc.
- Number of employees, titles, salary levels, time in position? How many officers, partners, key executives, etc.?
- What are the existing benefit programs, including health and retirement plans: Group life insurance, HMO/PPO/Indemnity Health Plans, SEP, 401k, 403b, pension, non-qualified plans, etc.?
- What insurance plans are in place for you/your family?
Rating: 5.0/5 (1 vote cast)
Consult a Life Insurance Agent
At no charge to you, a New York Life Agent — professionally trained and experienced — can help you analyze your needs and recommend appropriate solutions through insurance and financial products and concepts. Request a no-obligation review with a New York Life Agent.
This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.
|African American Entrepreneurs: A Powerful Trend|