Accounts Receivable Protection – Shield accounts receivable from creditors and lawsuit – Capitalizing Accounts Receivable immediately converts the non-interest bearing Accounts receivable into a Supplemental Savings Plan in the form of Life Insurance for the exclusive benefit of the participating physician(s). Not only does the plan potentially protect the A/R from creditors and lawsuits(subject to State statute) but the funding vehicle can be afforded personal creditor protection by State statute.
In essence, these programs can potentially shield some or all of the actual Accounts Receivablefrom creditors and lawsuits and simultaneously convert the value of the A/Rinto a life insurance policy with cash values. The plan is structured so values accumulate without current taxation. At retirement these values may be accessed via a series of distributions that are free from income taxation.
Buy-Sell Agreement – A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.
Two frequently used forms of buy-sell agreements are Cross Purchase and Entity Purchase.
Cross Purchase – Surviving business owners purchase the deceased or disabled owner’s share of the business from the estate or the owner for an agreed-upon price.
Entity Purchase -The business buys the deceased or disabled owner’s interest (also known as a stock redemption plan). The deceased owner’s estate or the disabled owner receives an agreed-upon price, with the remaining partners then owning all the business.
- Assures a definite price and buyer under mutually agreeable conditions.
- Creates an automatic market for the business interest.
- Assures customer, creditors and employees of business continuity.
- Active owners retain business control.
Disability Buy-Out Insurance – A need is created for the business if you or a partner(s) were to become disabled. A buy-sell agreement establishes a predetermined business price and a buyer for the business interest. Disability buy-out insurance is commonly used to help provide the funding needed for the buy-sell agreement.
Disability Overhead Expense Insurance -Reimburses the owner for covered overhead expenses up to a specified amount during a disability. It covers fixed business expenses such as Lease, rent or mortgage payments, Utilities, Liability insurance, Property taxes, Accounting and legal services, Professional trade dues and subscriptions, Other fixed expenses normally incurred in running the business.
- Helps meet routine business expenses and allows the business to remain open.
- Assures customers, creditors and employees of business continuity.
- Policy premiums are tax-deductible as an ordinary and necessary business expense.
Key-Person Insurance – a type of life insurance that protects the business if a key employee dies. If that person is a top salesperson, the insurance might cover lost sales; if the employee is a vital manager, the insurance could cover the cost of finding, hiring and training a replacement.
Considerations for taking out key-person insurance:
- How much debt would the company have to pay back if the new venture were forced to cease or temporarily halt activities due to the death of one of the key members? If this sum is substantial, key-person insurance may be for you.
- Would the business have to be liquidated or sold in order to settle the estates of any members? This is a common reason to take out key-person insurance.
- Will lenders require insurance?
- Would any additional financial obligations fall upon the venture or partnership after the death of a member? This could include contractual payments taken on by the partnership or its members.
Executive Benefit and Compensation Plans
Executive Bonus Plan – The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive.
Executive Medical Reimbursement – is excess medical program that covers most out-of-pocket expenses created by exclusions, reductions and cutbacks in primary health plans and ancillary employee benefits. Premiums paid for by this policy may be deductible for the company and the benefits received by the insured individuals may be exempt from taxable income.
Split-Dollar Plan – An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds. Split-dollar plans have been among the most significant forms of executive benefits for more than 40 years. Split-dollar describes a method of paying for insurance by splitting the premiums and proceeds between the employer and the employee. The dominant use of such plans filled the gaps in a deferred compensation plan for key employees. Split-dollar insurance has also been used to provide additional retirement income to participants through a Supplemental Executive Retirement Program (SERP). These plans gained popularity because they offer an economical way to provide survivor benefits, generally with favorable income tax consequences to the family