Protecting Your Business Starts with Protecting Yourself

One thing I appreciate about our NAWAIQ community is that women are willing to share what they know and help each other grow. We're learning new tools, building connections, and finding ways to run our businesses more efficiently.

But while we're busy growing, we also need to make time to protect what we've built.

As a financial services professional and insurance agent with Oak Harbor Insurance Group, I find that many business owners I speak with haven't fully explored the financial protection and planning strategies that may benefit them. Many also haven't decided what would happen to their business if they became ill, passed away, or wanted to retire.

You don't have to tackle everything at once. Here are three places to start.

1. Protect the Person Your Business Depends On - You

If you couldn't work for several months, how would your household and business bills get paid?

Review your life insurance, health coverage, and disability income protection. Depending on your business, liability, professional liability, and cyber coverage may also need attention.

Some life insurance policies offer accelerated death benefits, sometimes called living benefits. These provisions may allow eligible policyholders to access a portion of their death benefit while living if they meet certain qualifying medical conditions.

What you should know: Living benefits are not available under every life insurance policy. Qualifying conditions, benefit amounts, costs, exclusions, and eligibility requirements vary by insurer, policy, and applicable state insurance regulations. Receiving an accelerated benefit generally reduces the remaining death benefit available to beneficiaries and may have tax or public-assistance implications.

Ask your insurance professional what your policy actually covers rather than assuming it will provide benefits in every situation.

Keep an emergency reserve, too. Having accessible savings can give you breathing room when income slows or an unexpected expense comes up.

Protecting yourself isn't separate from protecting your business. For many entrepreneurs, the two are closely connected.

2. Put Your Succession Plan in Writing

Succession planning isn't only for someone approaching retirement. It also helps your family, employees, and clients know what to do if you're unexpectedly unavailable.

Start with these questions:

• Who could keep the business running if I needed time away?
• Would I want the business transferred, sold, or closed?
• Does someone know where to find important records and instructions?
• If I have a business partner, how would either owner's share be purchased?

Document your essential responsibilities and work with an attorney to establish the appropriate legal agreements.

For businesses with multiple owners, a buy-sell agreement can outline how an ownership transition would work following certain events, including an owner's death, disability, or departure.

Life insurance may help fund a buyout following an owner's death, but the policy and agreement need to be coordinated.

What you should know: Business ownership transfers, buy-sell agreements, and insurance-funded succession strategies may have legal and tax consequences that vary by business structure, ownership arrangement, and state law. The agreement should be developed with qualified legal and tax professionals to ensure it reflects the owners' intentions.

Even if you work alone, a plan can help your family handle unfinished projects, client communications, and business obligations.

A little planning today can prevent significant confusion during an already difficult time.

3. Make Tax Planning Part of Your Business Routine

Don't wait until you're filing your return to ask what you could have done differently.

A SEP IRA, SIMPLE IRA, or 401(k) may help you save for retirement while receiving potential tax benefits. The right option depends on your income, employees, business structure, and goals.

Depending on the type of plan, qualifying pre-tax contributions may reduce current taxable income, while distributions may be taxable later. Employer contributions and employee contributions can have different tax treatments.

What you should know: Retirement plan contribution limits, eligibility rules, employer obligations, tax treatment, and deadlines vary. Federal tax rules may change, and state tax treatment may differ. Consult a qualified tax or retirement-plan professional before selecting or modifying a plan.

Keep business and personal finances separate, maintain accurate expense records, and schedule a planning conversation with your CPA before year-end.

Business expenses generally must meet applicable tax requirements, including being ordinary and necessary to qualify for a federal business expense deduction.

Insurance Strategies That May Support Business Planning

Your business may also offer opportunities to provide insurance benefits for employees or eligible owner-employees.

One example is a Section 162 executive bonus arrangement.

Under this type of arrangement, an employer may provide additional compensation to an employee, who may use the funds to purchase an individually owned life insurance policy.

When properly structured, qualifying and reasonable compensation for services actually performed may be deductible to the employer under Internal Revenue Code Section 162. The employee generally reports the bonus as taxable compensation.

What you should know: Section 162 does not automatically make life insurance premiums deductible. The potential business deduction relates to qualifying employee compensation. Deductibility depends on the employment relationship, business structure, reasonableness of compensation, and applicable federal tax rules. Owner-employees may be subject to different tax treatment depending on the business entity. State tax treatment may also differ.

This strategy is not automatically available or advantageous for every business owner.

Key person insurance serves a different purpose.

It may provide funds to help a business manage the financial impact of losing an essential owner or employee. Those funds may help support ongoing operations, address financial obligations, or provide time to manage a leadership transition.

When a business is directly or indirectly the beneficiary of a life insurance policy, premiums generally are not deductible for federal income tax purposes.

What you should know: Employer-owned life insurance policies may be subject to federal notice, written consent, and reporting requirements. Certain requirements must be satisfied before a policy is issued, and failure to comply can affect the federal income tax treatment of death benefits. Applicable state insurance laws and policy provisions may impose additional requirements.

Insurance arrangements involving business owners, employees, or ownership transfers should be reviewed with qualified tax, legal, and insurance professionals before implementation.

The purpose of these strategies should be to support the financial security and continuity of your business, not simply to pursue a potential tax deduction.

Start with One Step

Through Oak Harbor Insurance Group, my role is to help you identify potential protection gaps and explore insurance options that may support your business and personal financial goals.

Your CPA and attorney guide the tax and legal decisions.

For the women in our NAWAIQ community, my suggestion is simple: choose one area to review this month.

Schedule an insurance checkup, write down your business instructions, or book a tax-planning conversation.

You don't have to tackle everything at once.

You've worked hard to build your business. Give yourself the same care and attention you give your clients.

Important Educational and Financial Disclosure

This article is provided for general educational and informational purposes only. It does not constitute individualized insurance, tax, legal, accounting, investment, or financial planning advice, nor does it recommend the purchase of any specific insurance or financial product.

Melissa Northway and Oak Harbor Insurance Group provide insurance services, not tax or legal advice. Publication by the National Association of Women in AI (NAWAIQ) does not constitute an endorsement of any particular insurance company, product, provider, or financial strategy.

Insurance products and benefits are subject to applicable state insurance laws, licensing requirements, underwriting approval, policy terms, exclusions, costs, and availability. Not all products or benefits are available in every state or appropriate for every individual or business.

Tax laws, retirement contribution limits, eligibility requirements, and the treatment of insurance-related arrangements may change. Federal and state tax treatment may differ. Any potential deduction or tax benefit depends on individual circumstances, business structure, and applicable law.

Accelerated death benefits may reduce the remaining death benefit and may affect taxes or eligibility for certain public assistance programs. They are not a substitute for comprehensive health, disability, or long-term care insurance.

Readers should consult their own qualified insurance, tax, and legal professionals before implementing any strategy discussed. No specific tax savings, insurance benefits, or financial results are guaranteed.