Part three in our blog series, Top 6 Reasons Why Smart Business Owners Use Life Insurance, covers how accumulating assets outside of the company for retirement helps you, your loved ones, and your business.
#3. Accumulate Assets for Retirement
In addition to protecting the company, many business owners use cash value life insurance as a diversified vehicle, separate from the performance of the company, to accumulate assets and build future retirement income for themselves and their key employees.
Permanent life insurance policies include a cash value account that grows tax-deferred and can be accessed tax-free via withdrawals and policy loans while the insured is living. The specific type of life insurance policy to use depends on the desired objectives and other factors.
In many cases, business owners and key employees earn levels of income that exceed the contributions limits under a 401(k), profit sharing, or other qualified retirement plan, but there are no contribution limits to non-qualified, private life insurance-based plans that provide additional retirement income.
Properly structured life insurance in a non-qualified plan is a legitimate option to grow wealth. It can provide members of the senior generation with death, disability, and retirement benefits, especially when they have transitioned the business to the junior members and are no longer receiving compensation. This combination of tax-advantaged death benefits and cash values makes life insurance the best way to accumulate and grow funds for retirement while simultaneously providing the cash necessary for the business or the surviving owners to purchase a deceased owner’s interest.
Often referred to as “golden handcuffs,” the same concept is often used as a way to attract and incentivize key employees to remain with the business and perform with the promise of future retirement income from policy cash values. The business is simultaneously protected against the loss of a key person.
By protecting your family and accumulating assets early on with life insurance, you will be setting yourself up for a successful and relaxing retirement.
In blog four we will discuss protecting those assets from liabilities and future creditors.