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How Small Businesses can Hedge Against Banking Risks

Small businesses face many challenges when it comes to managing risks and protecting their assets. One way they can safeguard against potential financial losses is by owning permanent cash value Corporate Owned Life Insurance (COLI) from trusted Mutual Insurers. In this post, we will explore how permanent cash value COLI can help small businesses protect against systemic banking risks and illustrate the benefits of accessing cash values during times of crisis.

What is Corporate Owned Life Insurance (COLI)?

As [1] explains, COLI is life insurance purchased by a corporation for its own use. The corporation is either the total or partial beneficiary on the policy, and an employee or executive is typically the insured. COLI policies can be either term or permanent policies. Permanent policies, such as whole life insurance, have a cash value component that can be accessed during the insured's lifetime. In addition to providing a death benefit, COLI policies can also accumulate cash value over time, which can provide a source of liquidity for the company in times of financial stress [2].

What is Cash Value Life Insurance?

Cash value life insurance is a type of permanent life insurance that has a savings component. This savings component, also known as cash value, accumulates over time and can be accessed during the insured's lifetime. There are different types of cash-value life insurance policies, such as whole life insurance, universal life insurance, indexed-universal life insurance, and variable life insurance.

How can permanent cash value COLI help small businesses protect against systemic banking risks?

In the recent past, we have seen numerous examples of banks failing or being bailed out by the government during times of financial crisis. For example, very recently the recent Silicon Valley Bank closure left many small businesses struggling to find a new bank to work with. Let’s not forget the Washington Mutual Bank (WaMu) collapse in September 2008, the biggest bank failure in history. By the end of 2007, WaMu had more than 43,000 employees, 2,200 branch offices in 15 states, and $188.3 billion in deposits. Its biggest customers were individuals and small businesses. Despite its success, WaMu's risk management failed, and the old organization of upper management fell apart, leading to the bank's catastrophic collapse in 2008 [3].

By owning permanent cash value COLI from trusted Mutual Insurers in addition to typical bank deposits, small businesses can protect against potential financial losses that can result from bank failures or other systemic banking risks.

One of the main benefits of owning permanent cash value COLI is the ability to access the cash value during times of need. For example, small businesses that own a COLI policy can access the cash value to cover expenses during times of economic downturn or to fund a key employee's retirement. This ability to access cash values can be especially important during times of crisis when traditional financing options may be limited. These types of policies can certainly help a small business protect itself from financial losses due to the death of a key employee, while also providing tax advantages.

In addition, Mutual Insurers have historically shown strength and prudent management during financial crises. Many of these insurers have been around for over 150 years and have weathered previous economic downturns. These companies typically have a long track record of providing stable returns to policyholders. By working with a trusted Mutual Insurer, small businesses can have confidence in their ability to protect their assets and manage risks over the long term.

In summary, small businesses can benefit from owning permanent cash value Corporate Owned Life Insurance (COLI) from trusted Mutual Insurers. These policies can help protect against systemic banking risks and provide access to cash values during times of crisis. By working with trusted advisors and insurers, small businesses can have confidence in their ability to manage risks and protect their assets over the long term.

The information provided in this article is not intended as a substitute for professional financial advice and is provided solely for educational and informational purposes. Any decisions made based on this information should be done so with the guidance of a professional financial advisor who is familiar with your specific financial situation and goals.

Warning: Loans taken out against the cash value of a life insurance policy can lower the death benefit and reduce the value of the policy over time. It is important to carefully consider the impact of loans on your policy and ensure that you are able to repay any borrowed funds. Before taking out a loan against a life insurance policy, we recommend consulting with a professional financial advisor and your tax professional to fully understand the potential risks and benefits.


Troy Barrow, LUTCF has been a financial professional for over 15 years. He has been successfully helping clients like you achieve your financial goals.

Arlington Insurance Planning Services LLC (AIPS) was founded by Troy as an independent agency to provide tailored insurance and financial solutions to build, protect, and transfer the wealth of our Individual and Business clientele and community, as well as to provide access to a variety of well-positioned companies to service their needs.


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