Transfers Of Business Owned Life Insurance
What is Business Owned Life Insurance?
Business owned life insurance (BOLI) is a type of life insurance that is purchased and owned by a business. The policy is usually taken out on the life of an employee, executive or key person within the organization and the company is listed as the beneficiary. The death benefit from the policy can be used as a way for the business to recoup the costs that may be associated with the death of a key employee, such as training a replacement or lost profits from the deceased’s responsibilities. BOLI is typically a permanent life insurance policy, meaning that it will remain in force until the death of the insured. For the company to benefit, the death benefit must exceed the cost of the policy.
Benefits of Business Owned Life Insurance
BOLI can be a great tool for businesses to use as a way to protect their financial future. It can provide a way to fund buy-sell agreements, pay out key employees, provide financial security for business owners, and can also be a great way to reward and retain key employees. BOLI can also provide a way to accumulate cash value, which can be used to offset other costs associated with the business. In addition, businesses can take advantage of the tax benefits associated with BOLI. The cash value build up within the policy is tax deferred, meaning that the money is not subject to taxes until it is withdrawn. In some cases, the death benefit may be paid out tax-free to the beneficiaries.
Types of Business Owned Life Insurance
The two most common types of BOLI are universal life and whole life. Universal life is a type of permanent life insurance policy that allows the policyholder to adjust their death benefit and premium to meet their needs. Whole life is a permanent life insurance policy that offers a fixed death benefit and premium rate. Both types of BOLI policies will accumulate cash value and can be converted into other types of permanent life insurance policies.
When is Business Owned Life Insurance Appropriate?
Business owned life insurance can be an appropriate solution for a variety of businesses. It can be used to provide a way to fund buy-sell agreements, to provide financial security for business owners and their families, to reward and retain key employees, or to provide a way to accumulate cash value. The decision to purchase BOLI should be based on the individual needs of the business. It is important to carefully evaluate the costs and benefits associated with the policy to ensure that it is an appropriate solution for the business.
Transferring Business Owned Life Insurance
There may come a time when a business decides to transfer their BOLI policy to another company or individual. This is known as a transfer of ownership and can be done in a variety of ways. The exact process will depend on the type of policy and the terms of the policy. When transferring a BOLI policy, it is important to consider the tax implications of the transfer. Depending on the type of policy, the transfer may be subject to tax. It is important to consult with a qualified professional to ensure that all tax implications are properly addressed before proceeding with the transfer.
Advantages of Transferring Business Owned Life Insurance
There are several advantages to transferring a BOLI policy. First, it can provide greater flexibility for the business. For example, if the business needs to move to a different jurisdiction, a transfer of ownership can be used to transfer the policy to a new owner in the new jurisdiction. Additionally, the transfer of ownership can be used to transfer the policy to a new beneficiary, such as a key employee or family member. Finally, the transfer of ownership can be used to convert the policy to a different type of life insurance policy.
Disadvantages of Transferring Business Owned Life Insurance
Despite the advantages of transferring a BOLI policy, there are some potential disadvantages as well. For example, the transfer may be subject to taxes. Additionally, the transfer of ownership can also result in a lapse of the policy, meaning that the policy will no longer be in force. Finally, the transfer of ownership can also be subject to fees and other expenses. It is important to consider all of these potential costs and benefits before proceeding with a transfer of ownership.
Conclusion
Business owned life insurance (BOLI) can be a great tool for businesses to use as a way to protect their financial future. It can provide a way to fund buy-sell agreements, pay out key employees, provide financial security for business owners, and can also be a great way to reward and retain key employees. However, it is important to consider the potential costs and benefits associated with a transfer of ownership before proceeding. If done properly, a transfer of ownership can provide many benefits to a business and its key personnel.