Learn and Plan | Life insurance for business planning
black female business owner discusses life insurance

Life insurance for business planning

Jun 21, 2023, 5:21:19 PM | Reading Time: 5 minutes

You may be familiar with buying life insurance for yourself or a family member as death benefit protection, but are you aware of the role it can play in business planning? Whether you’re an entrepreneur looking to protect your share of the business or wish to reward and retain top talent at your organization, life insurance could be a solution.

Life insurance is frequently used in the corporate world in buy-sell agreements, key-person insurance, executive bonuses, and succession planning. Let’s explore some common scenarios regarding life insurance for business owners and how it can be an important tool in protecting the financial future of your business.

Can I buy life insurance for my business partner?

Yes, life insurance is often used in business partnerships to help protect the business, the deceased partner’s family, and the surviving partner. “Purchasing a departing owners interest is a paramount problem in any business,” states Andrew Rinn, Sammons Financial Group’s Associate Vice President of Life Division Advanced Sales Strategy. “Fortunately, strategically structured life insurance can perform a double duty. It allows the remaining owners the ability to continue the business while giving the departing owner and their family the necessary cash to meet their personal needs.” This process of buying life insurance on a business partner is typically used to fund a buy-sell agreement. In this type of situation, each partner or the business buys a policy on a partner. If one partner passes away, the life insurance policy’s death benefit can be used to buy the other person’s share of the business; helping to minimize the financial hardship that could be caused by a partner’s sudden departure. In a case like this, the family of the deceased gets to turn their business interest into monetary value, and the remaining partner can keep working in the business they helped to create.

What type of life insurance can be used for a buy-sell agreement?

A buy-sell agreement can utilize several different types of life insurance—including term, universal life, or indexed universal life insurance (IUL). Term insurance provides temporary coverage for a specific period, while permanent insurance offers lifetime protection. Discussing your goals with a financial professional can help determine which type of life insurance may be right for your particular situation.

Can life insurance be used in succession planning?

Yes, a life insurance policy can be an important part of a business’s succession plan. In cases where a family-owned business is being passed down a generation, but other children are not involved in the business, a life insurance policy can be used to help leave a fair inheritance to each family member. “Life insurance can be an ideal tool to bridge the gap between generations of business owners,” adds Rinn. “It provides the liquidity to equalize an inheritance to family members not interested in the family business, while ensuring the company passes to those that will carry on the family legacy.”

Let’s use a hypothetical example to take a closer look. Imagine you have owned a wholesale business for 30 years and want to leave it to your daughter to own and run in your absence. Your sons do not wish to be involved with the business, but you’d like your children to receive equal amounts as an inheritance. Your business is your largest asset and you would hate for your daughter to have to sell the business to provide her brothers with an equal share. A potential solution could be to purchase a permanent life insurance policy on yourself, with a death benefit equal to a multiple of the company’s value, and make your sons the beneficiaries of the policy.

Upon your passing, each of them would get an equitable distribution of the inheritance; the boys would split the death benefit equally, and your daughter would inherit and run the company business.

How can I use life insurance as an employee perk?

Many companies offer key employees a life insurance option that provides a death benefit equal to or double their annual salary. “This is a flexible tool to retain, reward and recruit a key employee. Death benefit protection and tax-favored supplemental income can be the ideal strategy to keep top talent in your organization,” shared Rinn. Along with death benefit protection, IUL insurance can provide a “bonus” through the potential cash value generated during the lifetime of the policy. The employee can then use this cash value to supplement their retirement funds or for other purposes. What’s more, the bonus can be tax deductible to the company so long as it’s considered reasonable compensation. This provides a “win-win” for both employer and employee.

Life insurance can be a valuable way to protect your family, your partner, and the future of your business. Along with helping your employees improve their financial wellness, you can ensure your business can continue to grow and thrive upon the foundation you worked so hard to create. Reach out to a financial professional to learn more about the benefits of life insurance and what options may be right for you and your business.


Life insurance policies have terms under which the policy may be continued in effect or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. Current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write Midland National Life Insurance Company One Sammons Plaza, Sioux Falls, SD 57193. Telephone 800-923-3223.

Indexed universal life insurance products are not an investment in the “market” or the applicable index and are subject to all policy fees normally associated with most universal life insurance.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

REV 2/2023