Funding
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You cannot take full advantage of a business continuation plan unless the purchase price is available in cash. Your business or its owners can obtain the money from one of three sources:
- Capital/Asset Liquidation – You and the other business owners can choose to use cash from your business or out of your own pockets. However, this way, your cost will never be less than 100 cents on the dollar and adequate cash may not be available when needed. This could also result in a highly undesirable forced liquidation of assets.
- Credit – Borrowed money always costs more than 100 cents on the dollar and represents an unnecessary credit strain.
- Current Income – You and the other business owners may decide to use current income from your business to purchase life insurance on each of your lives. Then, when any insured dies, the purchase price is immediately available, usually tax-free, at a cost that is always less than 100 cents on the dollar. The plan is fully funded, through life premiums, while all parties are alive.
Please contact your legal and tax professionals for more information about this topic.
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