Can a Limited Liability Company Own a Whole Life Policy?
- An LLC is a limited liability company. This business structure allows you to buy whole life insurance for the company. The company purchases the policy (with the signature of the owner or any corporate officer authorized to make financial transactions on behalf of the company). The company then pays premiums to the whole life insurance policy. The company may use the proceeds of the policy in any way it wishes (i.e., to expand the business using tax-free policy loans).
- The benefit of owning whole life insurance in an LLC is that the corporation has a place to put money that is guaranteed. Whole life insurance provides guaranteed cash values and a death benefit. Whole life insurance also pays interest rates on the cash value account in excess of fixed-interest bank accounts. On top of that, cash values may be borrowed against, tax-free, for any purpose. The combination of guaranteed cash values, tax-free access to the policy values and a high-yield savings would mean that the company does not have to keep cash reserves tied up in long-term, illiquid investments.
- The disadvantage to an LLC owning whole life insurance is that the rules for companies owning whole life might be different from those for individuals. Companies are subject to Corporate Owned Life Insurance (COLI) rules set forth by the IRS. Some of these rules might limit the tax advantages for businesses. In particular, interest on policy loans wouldn't be tax deductible beyond $50,000. Additionally, death benefits may not be tax-free if the company is not the beneficiary of the policy.
- If you own an LLC, and your company needs a cash reserve, a whole life policy may be ideal. However, if you want the ability to use the funds for personal reasons, a policy purchased outside of the company would be better. The policy can still be a whole life policy and paid for by the corporation. It won't be limited to COLI rules and the taxes on the premiums due can be paid for as a tax-deductible expense by the LLC.