Life Insurance Business

Life Insurance Business – Charlie Cousins, Head of Health and Safety Hooray talks to us about the business life insurance market and why employers who don’t provide it are losing their lives.

Let’s face it, announcing to your employees that you’re giving them life insurance isn’t going to be greeted with enthusiastic cheers and employees wanting to know more… it’s just not that much of a benefit.

Life Insurance Business

However, it has several benefits that most business owners are unaware of and can be very valuable especially for the small and medium business market.

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When setting up new marketing plans, we’ve heard that small business owners are looking mainly at employee benefits, as large companies have lost their employees. Clearly designing a significantly improved benefits package is key when employees are considering their next move.

Depending on their age and medical history, it could save an employee £100 a month by moving to a company that provides group life insurance and canceling their existing individual cover.

Anyone who has taken out individual life insurance knows that you answer lots and lots of questions, post your medical history, and then often see a tearful summary.

Insurers require this on an individual basis, but for Group Life policies, a medical history is only required for high earners (or those whose benefits exceed the free underwriting level). This means that employees who may have been denied life insurance due to health issues will be covered under the company policy without the mandatory health questionnaire.

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That’s right – your employees can do the right thing while benefiting from tax efficiency. Business life insurance premium payments are treated as business expenses, so you’ll qualify for corporation tax relief. In addition, group life insurance is not classified as a benefit in kind, so no tax contribution is made to the employee.

All Group Life plans require the establishment of a trust into which all eligible claims are paid. Fortunately, insurance companies often provide a Registered Master Trust as part of their product offering, meaning there is no legwork for employers. If the company implements the policy as a registered scheme with payments into a discretionary fund, employees will have no inheritance tax burden.

The occupational life insurance market currently insures more than 9.5 million people for benefits worth more than a trillion pounds.

We mentioned that you’ll keep your most valuable asset, but if you want to attract the best talent, you want to make sure you’re keeping up with the market.

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Sadly, a recent study revealed that 79% of employees felt that their employers did not provide any bereavement support when returning to work following the death of a child.

We’ve found that the companies we’ve supported want to support their employees during any bereavement, but often they’ve never been in this situation before, so we don’t know what to do, who to turn to for advice.

Business life insurance provides death support in the insurance price in the form of telephone and personal counseling for employees and their families.

If you are considering life insurance for your employees or think you are paying too much for your current benefits, contact Charlie Cousins ​​on 01273 222805 or visit www.hoorayinsurance.co.uk

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Every quarter we offer a new edition of SME News, which is published on our website, shared on our social media and sent to over 78,000 people from different sectors of the UK SME market. When considering creating a cross-buy-sell agreement, one strategy a savvy business owner should consider is Life Insurance LLC.

An entity purchase agreement exists if the business is the owner and beneficiary of the homeowner’s life insurance policy.

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This is different from a cross-buy agreement. This means that business owners – not businesses – agree to buy life insurance from other owners. Each business owner becomes an owner and beneficiary.

If business owners A, B, and C purchase life insurance policies, A owns one policy in which B is the beneficiary and another in which C is the beneficiary. The same formula would apply to B and C.

Business owners form a Life Insurance LLC to enter into life insurance contracts and to facilitate a mutual agreement to buy and sell for a related business entity. Prudent entrepreneurs who strategically form a Life Insurance LLC that is taxed as a partnership must be exempt from the transfer-for-value rules of IRC § 101(a)(2)(B).

In order to demonstrate the value of using an LLC structure versus traditional formats for cross-purchase or entity purchase agreements, it is important to consider the advantages and disadvantages of each. The purpose of this is to show that this strategy provides most of the advantages of both formats and removes many of the disadvantages.

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Considering the pros and cons of both purchase and sale agreement formats, let’s consider Life Insurance LLC as a suitable strategy for significant improvement when implemented in a cross-purchase agreement format.

First, create a cross-buy sales and purchase agreement. As part of the purchase and sale agreement, the owners agree to form an LLC for the purpose of underwriting life insurance policies related to the business.

Second, write an operating agreement that specifies that the policies purchased are not included in the insured property and the allocation of death benefits is allocated to the surviving members of the business.

The operating agreement shall clearly state the business purpose of Life Insurance LLC, which is to facilitate the succession plan of the connected person. In addition, a separate entity can provide policy protection from both business and personal creditors, as well as protection from insider abuse.

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In addition, the LLC’s ownership of other assets besides the policy insurance provides more evidence to support the entity’s status as a partnership if IRS audits involved a transfer for value.

Third, the owners should form a Life Insurance LLC, naming the LLC as the beneficiary of all life insurance policies. The IRS may require the applicable business owner not to serve as manager if the LLC is the managing manager.

The insured should have no control or association with the policy during the life of the insured. The operating agreement must expressly prohibit members from acting in relation to their life insurance policy.

Contributions by members to the LLC to pay life insurance premiums on the lives of other members are considered uninsured member contributions. This causes an increase in tax capital accounts or an increase in basis. The insurer distributes the death proceeds among the surviving member’s taxable capital accounts in proportion to the premiums paid.

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The insurer distributes the life insurance when one of the members dies. The remaining business owners will purchase the deceased member’s interest in the related business (as well as the interest in the LLC) according to the language of the purchase and sale agreement.

Buying new life insurance requires money to cover the premiums. Members can contribute in cash or related businesses can do so. The IRS allows a tax exemption for policy transfers to LLCs (see IRC § 101(a)(2)(B) transfer of value exception for LLCs taxed as partnerships). Members may also wish to make a cash contribution or include other assets in the LLC. This shows an economic interest in the Company and weakens the argument that the IRC § 101 exemption would not apply.

Generally, the IRS considers a premium paid by a business to be a transfer to the owner in the form of a dividend, distribution, or compensation. “Contributions” are added to the partners’ basis in the partnership. The IRS considers them tax-free contributions to the LLC.

If the partner decides to leave, the insured can get their policy back for the value of their share in the business. This can usually be done so that both the partner and the partnership make a profit on the transfer. A partner’s basis in the policy would be equal to the partner’s basis in the partnership less any income received.

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If the insured dies, they die with a joint interest in two business entities: 1) Life Insurance LLC and 2) a related business. The basis, taking into account the tax consequences of the estate, is adjusted to the fair market value of the business interest at the date of death. There should be no gains and therefore no capital gains tax due to this increase in basis.

The IRS does not tax the LLC or its members on death benefit proceeds. The death benefit is tax-free income that accrues to the uninsured member and increases the LLC’s tax base. Therefore, uninsured members are not taxed on death benefit proceeds.

Posted in Business Planning, LLC Choosing an Entity, Succession Planning and Reaching a Purchase and Sale Agreement, Life Insurance LLC, LLC, Succession Planning, Tax Planning

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Life Insurance: What It Is, How It Works, And How To Buy A Policy

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