Life insurance is a vehicle whereby a tax-free lump sum is paid to the beneficiary upon the death of the life insured. While a number of creative concepts and investment opportunities are available within insurance products, the essence of life insurance is that it financially protects families from the untimely death of its income earners.
For business and succession planning purposes, life insurance has traditionally been used as a funding vehicle for the survivorship obligations under a shareholders agreement, key person protection and business loan protection. Each of these traditional uses for life insurance focuses on the protection element associated with life insurance. The existence of a life insurance policy ensures that cash will be available to fulfill particular needs at a specific point in time when liquid funds are needed.