• Ideal Investment for Business Capital

Unlike other types of insurance, a whole life business policy produces cash value. Additionally, the cash value earns interest and may receive dividends. Mutual companies pay out dividends on what they earn during the course of a year and have a long history of stability.

Both business and individual whole life insurance policyholders can borrow against the accumulated cash value on their accounts. When you pay back the loan, it becomes available for future use. This creates incredible leverage for business owners looking for flexible lending options. Best of all, most policies allow you to take out multiple loans annually.

So, instead of paying interest on a banknote, you can finance business expenses with a whole life insurance policy (I removed “recaptures the interest”. I’m not a huge fan of that terminology as some view it as misleading). Also, insurance carriers typically charge lower rates than financial institutions.

• Great Way to Attract and Keep Employees

By offering whole life insurance at your business, you can create “insurable interest.” These policies are based on a potential loss to the company if a key team member passes away. Employers can then offer life insurance as an employee benefit.

When you pay the premium for your employees, you receive a tax benefit. Your company can also use the cash value that accumulates on the business insurance account. Either the business or someone designated by the employee can act as beneficiaries for covered team members. Plus, offering whole life insurance helps you attract and keep valuable employees by offering a potential income benefit to them in retirement. 

• Use Whole Life Insurance to Create a Business Succession Plan

When a business partner passes away prematurely, your business may lack the funds to continue operations. Even if the estate plan of the deceased partner takes the company into account, it can take some time to settle an estate.

Business succession plans that incorporate whole life policies are sometimes called “buy-sell agreements.” These companies provide the funds needed to buy out the deceased partner to keep the business going.

The cash value can also be used to cover situations where one business partner has to leave due to disability, retirement, or illness. The remaining owner or owners will retain control of the cash value of the commercial whole life policy.

• Protection Against Loss of a Key Person

Offering whole life insurance at your business can also create a “key person” policy. This protects your business against the loss of a key employee or business partner. The death benefit of this type of policy provides capital that can offset the gap left by a key person. You can use this capital to find a replacement to keep the business going.

• Unique Tax Benefits

Commercial whole life policies create an opportunity to grow wealth tax-free. This is true for both individual employees and the business as a whole. However, it takes careful planning to use the money appropriately and avoid tax consequences.

Whole life policies earn interest and dividends that aren’t subject to taxations. Additionally, the death benefit itself has tax benefits.

Interested in offering whole life insurance at your business? Contact IBC Global, Inc. for more information on a business whole life insurance policy that protects your business and employees.

Fixed loan rates are much easier to understand as the term “fixed” means just that – the rate is fixed and will not adjust.  With that said, it is beneficial to be aware of what features exist with policies that carry a fixed loan rate.   

Most companies/policies that have a fixed loan rate usually have a rate of 6%.  Some insurance companies still carry an 8% loan rate, but this is diminishing as a result of the economy’s prolonged low-interest-rate environment. Here are some common questions and features to be aware of that exist with fixed loan interest rate policies:  

• Question: How often does the fixed loan rate change?  
• Answer: It does not. If the rate is fixed, the company will not raise the rate. With that said, some companies offer an option to opt-out of the fixed loan rate provision.  

An example of this is Guardian Life Insurance Company:   

• Guardian offers a 6% fixed loan rate with Direct Recognition.  
• At policy year 10, a policyholder has the option to switch from a fixed loan rate to a variable loan rate. The variable loan rate has a floor of 4.5%, and the policy will function as a Non-Direct Recognition contract if elected.  
• If a policyholder elects to keep the 6% fixed loan rate, the rate will drop to a fixed rate of 4% at whichever comes last: 20 years or age 65. The policy will remain direct recognition if we carry a fixed rate of 4%. 

• Question: Are policies with a fixed loan rate Direct or Non-Direct Recognition?   
• Answer: Most policies with a fixed loan rate are Direct Recognition. However, it is important to understand the features of the company/product we are using.  

• Question: How does the company determine the fixed loan rate?  
• Answer: This is determined by the company and reviewed periodically.    

Most companies that use a fixed loan rate on their policies have a 6% interest rate.  Several years ago (prior to 2016) it was common to see a fixed rate of 8%.  If a fixed loan rate adjustment occurs, they will assess the rate of all policies issued from that point forward. A policyholder that has a fixed rate in place from an established policy cannot experience a rate increase. However, the company will offer the option to existing policyholders to make the change, if they elect to do so.  

For example: 

• We establish a policy today with a fixed loan rate of 6%. Fifteen years from now the company updates their fixed loan rate to 8%. Our policy will continue to carry a 6% fixed loan rate unless we elect to opt in to the new fixed loan rate.  

Just like the article: “All About The Variable Loan Rate”, this has a lot of detail. It is always important to look at the specific insurance contract and company we are considering.  This allows us to review the actual terms of our policy. This article is meant to provide more information and education.