The fourth reason to put a life insurance plan into play is to protect assets from liabilities and future creditors. Our blogs series, Top 6 Reasons Why Smart Business Owners Use Life Insurance, talks about this benefit as well as other reasons to get a life insurance policy.
#4. Protect Assets From Liabilities and Future Creditors
Businesses assuming the risk of potential environmental contamination (i.e., waste hauling, landfills, chemicals, etc.) are subject to liability under federal and state pollution laws. Service firms, such as law and accounting firms, physicians’ groups, and engineering and architectural firms, are often exposed to professional liability claims.
Moreover, such liability is not limited to the business itself, as the business owners also may be personally liable under such laws. As the business passes to the next generation, so does the potential liability.
Life insurance is ideal in this situation. The business owner can establish an irrevocable life insurance trust (ILIT) to last for the maximum period permitted by state law (in perpetuity for some states). The ILIT will provide the business owner’s heirs with income and principal as needed for health, education, maintenance, and support. If properly structured, the assets in the ILIT cannot be reached by creditors of the business owner or of the beneficiaries.
Additionally, in many states, life insurance cash value is protected from creditors making it an especially effective tool for business owners to use to grow their assets.
Protecting your assets is important for peace of mind and overall financial success. Blog five focuses on one of the most controversial items, avoiding family feuds.