Meet Springfield Inc.:
Maintaining Cash Flow with Life Insurance
Springfield Inc. is a small, successful business. One of the key employees is Joyce, a long-term employee whose knowledge and experience have consistently improved Springfield Inc.'s bottom line. Springfield Inc. has come to the realization that if Joyce were to die prematurely, it would adversely impact Springfield Inc. Finding, hiring, and training a replacement would likely take time and be costly. Springfield Inc. would have difficulty fulfilling its orders, and it might have to hire an outside consultant to fulfill Joyce's role. Profits could be noticeably reduced.
To offset this potential loss, Springfield Inc. purchases a life insurance policy on Joyce's life. Springfield Inc. will be the owner, the premium payer, and name itself as beneficiary. Although it would prefer to take an income tax deduction for the premiums, it learns from its tax and legal advisors that a tax deduction is not available but the death benefit is income tax free.*
Springfield Inc. purchases the policy, recognizing that life insurance can be a worthwhile risk management tool. If Joyce does not die during her working years, any cash value in future years could provide other options for Springfield Inc. The company could retrieve the cash value upon Joyce's retirement and use the cash for other purposes.
*Western & Southern Life does not give tax advice. Please contact your tax advisor for information that applies to your situation.