Small Business,
Big Opportunity

Small business owners are more aware than ever of the need to protect their businesses. However, most don’t know how life insurance could be an important tool in protecting their life’s work.

Small businesses — there are approximately 31.7 million of them — comprise 99.9% of U.S. businesses and 41.7% of the country's private workforce employees.1

Key Employee Life Insurance

Anyone who plays a critical role in the ongoing financial success of a business may impact the business's ability to survive. To help protect against the loss of a key employee's contributions and expertise, a business can purchase life insurance on the key employee.

How It Works

  • A business purchases insurance, known as employer-owned life insurance, on the key employee
  • Face amount can be determined a variety of ways, including the key employee’s impact to earnings and replacement cost
  • The business pays the premiums and is the beneficiary

Benefits For The Small Business

  • If the key employee dies, the policy death benefit helps the business financially while recruiting and training a new key employee
  • The business may be able to access the cash value while the employee is still alive
  • If IRS guidelines are met, the employee will not be taxed and the business receives the death benefit proceeds free of income tax

Executive Benefits

Life insurance policies can be leveraged by businesses to help attract, retain, or reward certain critical employees. The opportunity is significant given 51% of U.S. employees say they are actively looking for a new job or watching for openings.2

How It Works

  • The business pays a bonus to select employees — the bonus amount is used to purchase life insurance to help supplement the employee's qualified plan and group term offerings
  • Double bonus arrangements can cover the income tax liability to the employee
  • Employee owns the life insurance policy and designates the beneficiary

Benefits For The Small Business

  • Bonuses are used to pay premiums and are deductible to the business
  • IRS approval, disclosure, and annual reporting are not required
  • This is not a qualified plan, so there are no annual administrative costs and the business can choose which employees are offered the benefit

Buy-Sell Agreements

The absence of a succession plan can have a significantly negative impact on many parties, including the business itself. In fact, only 12% of small businesses survive through the third generation.3 There are numerous types of buy-sell agreements offering flexible, customizable solutions that can provide certainty, mitigate conflict, and facilitate a smooth ownership transition.

How It Works

  • Buy-sell agreements are legally binding and stipulate that upon a triggering event, an owner must sell his or her business interest to remaining owners or the business itself
  • Life insurance may be purchased to provide funding for the agreement upon a triggering event
  • Policy ownership, number of policies, and tax considerations vary by the type of buy-sell agreement and should be drafted by a qualified professional

Benefits For The Small Business

  • Adequate funds are available when they are needed to satisfy the terms of the agreement
  • Cash value of permanent life insurance can be accessed by the owner of the policy
  • Policy features, such as riders, can provide additional benefits during life

Planning Guide & Resources

Get started with our suite of tools and resources that explore strategies life insurance can offer small businesses.

Business Planning
Field Guide

Everything you need to know in one place

Business Planning
Fact Finder

What you need to know to help design the best solution for your client

Quick Reference Guide
Business Entities

Formation and taxation of business organizations

Taxation of Employer-Owned Life Insurance

Overview of tax considerations and requirements

Contact your sales partners at Transamerica for help designing policies for your business clients.

1 "2020 Small Business Profile," U.S. Small Business Administration, Office of Advocacy, 2020​

2 "State of the American Workplace report,", February 6, 2020

3 “Solving Succession Problems in Family-Owned Businesses,”, April 8, 2019