Life Insurance for Partners

[Grant R.]

When protecting yourself and your investing partner in a two-member JV (LLC), it's advisable to get life insurance for each partner. Which is the simplest/best solution to implement this?

A) the life insurance is purchased by the company itself, or
B) the individual members purchase policies and naming the company or other partner as a beneficiary?  

Many thanks for your thoughts!

[Mike S.]

It depends what you want to do.

You can have a life insurance owned by the company on the life of each partner, with the company as beneficiary. If the partner dies, the money paid to the company will give enough cash to buy back the membership from the estate of the deceased partner, avoiding to have to sell the assets to satisfy the heirs.

In that case, it is even better to have a maximum overfunded cash value permanent life insurance, as the cash value could be used as collateral to fund other projects.

If you are looking at giving a bonus to the partners, then you can buy life insurance owned by the company. After a few years you will transfer ownership of the policy to the partner.

There are multiples ways to look at it. Check also with your CPA as depending on the way you structure it you may or may not have deductible expense for the premium, and may or may not be taxed on the proceed of the insurance.