Company Name

Freshly Green Turf Farm


Landscape Service Provider



Employee Headcount


Using Life Insurance to Keep a Business Successful

Life insurance is often respected as a key part of an individual’s financial plan; a strategy that provides funds to a beneficiary in the event of a premature passing. Most individuals recognize its utility in personal financial planning but understanding some of the lesser known uses can provide a business with meaningful succession and retention strategies.
Business owners who recognize the versatility of life insurance can create strategies to protect the future of their firm’s success and create financial instruments to reward select individuals who contribute toward it.

Company Profile

The Leadership Team

Over thirty years, Mike and Steve have turned a small business operating out of a family barn into a multi million-dollar company. Mike is responsible for the day-to-day operations and as a result, has implemented the systems that keep the company running smoothly.
He works with financial professionals on an annual basis to keep the firm’s employee benefits in check and ensure the proper annual business and tax filings. Steve is responsible for managing the farm operations as well as the distribution and installation of the turf fields.

Key Employees

Freshly Green Turf Farm employs two individuals who substantially contribute to the company’s success.
Morgan, the national sales executive, is responsible for nearly 50% of the organization’s sales and is the primary point of contact to new and existing clientele. Morgan has an extensive network of partners and knows the decision makers of hundreds of sports arenas. Lauren was hired as an industry recognized pioneer in turf farming. She developed a process to improve the quality of turfs and reduce the time in production substantially. This has given Freshly Green Turf Farms a significant advantage over the competition.

An Unexpected Death

Thirty days ago, Mike suffered a heart attack and passes away. His assets, along with his ownership interest in Freshly Green Turf Farms, passes to his wife by way of his will. She has a successful career as a teacher and will be vested in a lucrative pension program within the next few years. While she is not going to become the COO or CFO of the family company, she will become entitled to 50% of the profits as well as equal decision-making authority as Steve.
With little knowledge of how the business operates daily, Mike’s wife can sell the inherited shares of the company to anyone she wishes. Additionally, in Mike’s absence, the company has started to see significant issues internally. As a key decision maker with substantial education in running an organization, it will be difficult to maintain efficient operations without Mike.
Buy-Sell Agreement
Most closely held businesses need to have a buy-sell agreement in place when other partners principals or shareholders are involved. Most commonly, this agreement states what occurs in the even that a partner or shareholder should die, but it should also include provisions for retirement or other departure, disability and for the divorce of a partner.
Entity Purchase Plan
This type of buy-sell arrangement is similar to the cross purchase plan, except the company owns the life insurance on each of the partners and the company redeems the deceased partner’s shares from his or her heirs, using insurance proceeds.
Funding a Buy-Sell Agreement
There are a number of ways to fund this type of an arrangement, but the most cost efficient and least complicated is the use of life insurance. Life insurance proceeds can provide the liquid funds necessary to purchase the shares from deceased partners or owners.

Planning for Morgan and Lauren

Freshly Green Turf Farms relies on both the consistency of their farming process as well as their extended network of clients. These attributes would not be achievable without
having hired two key contributors; Morgan and Lauren. As discussed earlier, both employees are highly sought-after professionals in the industry.
While Mike and Steve provided both employees lucrative contracts including six figure salaries, guaranteed bonuses, as well as comprehensive employer sponsored benefit programs—they are concerned about what were to happen if they found other opportunities down the line or in the event they passed away. In either scenario, the company would suffer substantially due to loss of future revenues and delays in order delivery.
While the firm has provided the employees with extensive financial incentives and guarantees, it hasn’t protected itself or created long-term retention strategies.

Key (Wo)man Insurance
In the unexpected event that Morgan or Lauren passed away, the company would be left in a very difficult situation. The firm would lose two members of their staff that contribute directly to the firm’s success and revenues. In addition to losing future revenues, the firm would need to locate replacements for the roles.
The challenge in this circumstance is that the market for these individuals may be narrower than expected. This could leave Freshly Green Turf Farms without the resources to succeed for some time. Insuring Morgan and Lauren could provide Freshly Green Turf Farms the funds to insulate revenue losses, retain a recruiting firm and find replacements to continue the company’s success.

Executive Bonus Arrangement
Morgan and Lauren are frequently approached by competitors for employment consideration. Beyond the two year contract signed with Freshly Green Turf Farms, there are no laws prohibiting them from leaving. It is important for the company to think of ways to retain their talent using employer sponsored benefit arrangements. These type of arrangements require offerings be provided to all in an indiscriminate fashion.
Alternatively, a company can consider the use of Executive Bonus Arrangements as a means to provide highly compensated talent additional funds toward retirement. This type of planning could provide more benefit to the company from a retention and vesting perspective. Most ERISA governed retirement programs require a vesting schedule of no more than six years. Executive bonus arrangements could provide vesting schedules as long as ten years.

Insurance for Protection…and Retention!

A business can use a permanent life insurance policy insuring the key employee to protect itself in the event of their passing. The policy can be funded by the business to provide significant cash value accumulation. Unlike a 401(k) plan, these plans have more flexibility and can be funded at substantially higher levels. The premium payments made on the insurance policy are tax deductible to the business as a fringe benefit. These allocations will be taxable to the employee at their marginal income tax brackets. The business can also provide the funds required to pay the taxes due on the benefit.

Versatility of Life Insurance

By considering the various uses of life insurance, Freshly Green Turf Farms can address risks that could be detrimental to its long-term success.

Succession Planning
A business needs to consider the viability of its success with or without key contributors or partners. If these key drivers of success were to pass away, how will your business continue to prove successful and financially solvent? Key questions to address may include:
-Does the business currently carry any debt or recurring credit lines which may be impacted in the event of a contributors passing? -Are any individuals responsible for a large portion of sales or revenue (20%+)?
-Do any individuals have a unique talent or proprietary ability driving the business’ success?
-Would the heirs of a deceased partner be capable of taking on active ownership to replace the knowledge or skill lost?

Retention Planning
Using the right type of insurance policy could provide much more than protection against a partner or key employee passing. Permanent insurance policies can provide tax efficient accumulation of cash value providing the key employee a reason to stay with the firm.
The flexibility around an executive bonus arrangement provides a company the ability to personalize vesting schedules, adjust contributions on an annual basis, and protect itself in the event the key employee passes.

Final Note

In order to prepare the appropriate strategy, it is important to consider your business’ unique needs. A conversation could provide a good starting point in bringing to light the stakeholders concerns.
Finding a professional or firm that focuses on business planning could make all the difference. An advisor can provide additional education and advice to facilitate a successful course of action.

Introduction to Succession Planning

Typical office employees have a clear path to retirement, but business owners need to carefully chart a course for a successful exit. Like most business owners, we hardly spend the right amount of time evaluating our exit plans due to our day to day responsibilities. If we invest the proper time and knowledge in building a strategy, it will pay dividends in how we mold our business for a successful transition.
The careful consideration of options will provide a business owner clarity on both the current condition of their venture as well as the direction of its course. This series of articles and interviews will serve as a guide providing concepts and real life experiences which will illustrate the importance of succession planning.

Value of My Business

Whether an exit strategy involves the careful selection and grooming of a familial heir, a negotiated sale, or a sudden and unexpected transition—sooner or later someone is going to need to figure out what your business is worth. How much your venture is worth is entirely dependent on the industry it operates in, historic and projected revenues as well as its assets and goodwill. The importance of addressing the valuation in what the IRS would consider a credible manner can help reduce tax liabilities that otherwise could be the ruin of a business transition plan.
If you have ever watched the show Shark Tank on NBC, the one area that consistently gets addressed is the valuation of the prospective business and the kind of deal they are making in reference to it. Mr. Wonderful pines over a faulty valuation and generally does not partner with business owners that can’t be realistic over their company’s worth. In business there are many ways to arrive at a venture’s valuation, but three are more common than most.

Retention Planning

-You want to sell your business.
-Trying to attract investors.
-Offering employees equity (ESOP)

-Understanding your business’ growth.

-Buying out a partner’s share.
-Funding a buy-sell arrangement.

-Applying for business loan or credit line.

-Need it for tax or estate planning reasons.


This experience may not be representative of the experience of other clients.  This experience is no guarantee of future performance or success.

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