Life Insurance for Business Owners in Connecticut
Short Answer
Business owners use life insurance for four main jobs: personal coverage for their family, key person insurance that pays the business if an essential person dies, buy-sell funding so surviving partners can buy a deceased owner's share, and group life as an employee benefit. Lenders, including SBA lenders, sometimes require a policy assigned as loan collateral.
| Use | Who owns it | Who gets paid |
|---|---|---|
| Personal coverage | You | Your family |
| Key person | The business | The business |
| Buy-sell (cross-purchase) | Each partner, on the others | The surviving partners |
| Buy-sell (entity) | The business | The business, to redeem the share |
| Group life | The business, for employees | Employees' beneficiaries |
What Is Key Person Insurance?
If losing one person would cost the business revenue, clients or a line of credit, the business can insure that person. The payout buys time to recruit, reassures lenders and covers lost profit. Coverage is often sized as a multiple of the person's compensation or their share of profit.
How Does Life Insurance Fund a Buy-Sell Agreement?
A buy-sell agreement sets the terms for buying out an owner who dies. Life insurance supplies the cash, so surviving partners don't have to take on debt and the deceased owner's family is paid fairly. Cross-purchase plans have each partner own a policy on the others; entity plans have the company own one policy per owner. The right structure depends on the number of owners and tax considerations.
Want actual Connecticut prices for business owners? A licensed agent can compare insurers for you, free.
Get free quotesHow Does Group Life Insurance Work for a Small Business?
Group term life is an inexpensive benefit. Employer-paid group term coverage up to $50,000 per employee is generally not taxable income to the employee under Section 79 of the Internal Revenue Code. Group plans often offer a base amount with limited or no health questions.
Why Should Your Own Coverage Come First?
Business debts with personal guarantees can pass to your estate. Make sure your personal policy covers them as well as your family's needs. For sizing, see the method on life insurance for new parents.
How Do Connecticut Estate and Gift Taxes Affect Business Owners?
Connecticut taxes estates above its exemption and is the only state with a gift tax. For owners of valuable businesses, a buy-sell agreement funded with life insurance sets a value for the shares and provides cash, which helps with both. How the policies are owned affects whether proceeds are counted in the estate, so plan the structure with a Connecticut estate attorney and CPA.
Questions People Ask
Are Premiums Tax-Deductible for a Business?
Generally not when the business is the beneficiary. Group term premiums for employees are usually deductible. Confirm with your CPA.
Get Real Prices for Business Owners in Connecticut
A licensed Connecticut agent compares insurers that cover business owners and sends real quotes. It's free.
Get my free quotes