Business Owner Life Insurance in Colorado

Business owner life insurance in Colorado is usually a question about people and property. Who can the company least afford to lose, and what happens to a ranch, a shop, or a practice if one owner is gone and the others have to decide what comes next? Coverage can put cash on the table before the hard conversation starts.

Colorado Companies That Depend on a Few Hands

Colorado's businesses are spread across very different places. Along the Front Range, small engineering, aerospace, and software firms often rest on a few specialists and a founder who holds the key customer. In the mountain towns, outfitters, restaurants, and lodging owners run seasonal operations where one partner may hold the lease and the relationships. On the Eastern Plains and the Western Slope, ranches and orchards pass from parents to children. Craft breweries and construction trades sit somewhere in between, owned by two or three partners who started together.

The weak point looks the same in every case. A lender can ask for payment, a customer can reopen a contract, and an heir can inherit a share of a company they have never worked in.

Paying for a Buyout With Life Insurance

A buy-sell agreement says who buys an owner's share and at what price when that owner dies, becomes disabled, or leaves. Life insurance is a common way to supply the cash. Without it, the surviving owners may have to borrow, or the family may wait years for payment.

• Cross purchase. Each owner holds a policy on the others and buys the share directly.
• Entity redemption. The company holds the policies and buys back the share.
• Insurance LLC. One entity holds a policy on each owner, which may be easier to manage with several partners.

A Colorado attorney should draft the agreement and your CPA should confirm the tax treatment for your entity. We design and place the coverage that fits. One detail deserves a close read: whether the agreement requires the purchase or only allows it. Our post on whether a buy sell agreement is mandatory or optional explains why that word can matter at death, and our guide to buy-sell agreement funding covers each design in more detail.

Mountain Towns and Seasonal Businesses

Seasonal companies can have thin cash for part of the year. A partner's death in the off season may arrive when the business has the least room to absorb it. Key person coverage is owned by the company and paid to the company, so it can supply working capital while the owners find a replacement and keep the doors open.

Premiums on key person coverage are generally not deductible. Employer-owned policies also carry written notice and consent rules that must be met before the policy is issued. Our overview of key person insurance for small business shows how owners decide who to cover.

Ranches and the Next Generation

Land, water rights, and equipment can make a family ranch valuable and hard to divide. If one child works the operation and the others live elsewhere, the ranch may be the only large asset in the estate. Life insurance can create cash that treats the other heirs fairly without forcing a break-up of the property.

• Decide who will run the operation and who will own it.
• Name how the other heirs will receive their share.
• Check whether the plan depends on selling land the family wants to keep.

Colorado Tax Points for Your Advisors

As far as we know, Colorado does not currently charge its own estate tax or inheritance tax, according to the Colorado Legislative Council. Federal estate tax rules can still apply to larger estates, and those rules change, so ask your CPA what applies today. Colorado follows common law property rules and not community property, which can affect how a spouse's interest in a business is treated. Your attorney can explain how that applies to your marriage and your entity.

A Short List for This Month

1. Find your buy-sell agreement and check whether it is funded.
2. Write down the people the company could least afford to lose.
3. Ask your attorney and CPA how your entity and estate are set up.
4. Bring the answers to a planning conversation.

Our business owner strategies page lays out the full set of tools, and our whole life insurance page explains one permanent option owners sometimes use. When you are ready, schedule a conversation and we will look at your company with you.