Life Insurance for Business Owners
As a business owner, you have a lot to think about and juggle when it comes to managing the day-to-day operations of your company. But something many entrepreneurs do not consider is the importance of business owner life insurance, a safety net that can help your family, business and employees in an unfortunate situation such as disability or death. Life insurance strategies for business owners can have many faces, it’s important to think through your objective before making a decision.
There’s no set business owner life insurance policy, but there are variety of options that can help alleviate strain on your business and family should you become incapacitated or unable to support either. In many cases, some forms of insurance can ensure your business dreams continue on even after you are no longer able to run the company.
Why do I need life insurance?
You already know how risky it can be to launch your own business — it is a risk you take every day through fluctuating markets and a growing global economy that increases competition. It is easy to anticipate many of the variables related to operating your own business in analyzing the risk and benefits. But there are many variables you cannot truly predict such as accidents, disability and even death. As an entrepreneur, guarding your family and business is important, and life insurance is one safeguard that makes certain both can thrive, even if you are not around to help.
Talking about life insurance can seem grim, but consider it a necessity to securing the future of your family and business. This is especially important in the case of small or sole-proprietor businesses that rely on one person to generate income. Many businesses do not have contingency plans in place to tackle the “what ifs” of life, especially those that can lead to the demise of a business.
If you are still unsure about whether you really need life insurance as a business owner, consider these questions:
- What happens to my family and business if I become disabled or die? Who will continue on the business and how will my family be able to support itself without me?
- What happens to my business if an employee becomes disabled or dies? What if this employee is a key employee with knowledge that is difficult to replicate, and is no longer able to work?
What kind of insurance plans are out there?
Like we said before, there is no single kind of life insurance for business owners, but instead a variety that can be beneficial at protecting your business assets and family. Among the most common types geared towards entrepreneurs are individual life insurance, key person insurance, disability insurance and buy-sell agreements.
Individual life insurance: Many people are familiar with individual life insurance policies, which provide coverage for your family after your passing. This kind of life insurance ranges in amount and can be used to support your family financially, especially if you were the sole provider. Individual life insurance policies can also be used to cover some or all of your business debts, which is exceptionally beneficial if you operate a small business that relies on you to be feasible. Utilizing this kind of insurance policy can give your family time to determine what to do with a company, keeping debts and lenders at bay for a short time.
Key person insurance: Small business and large businesses alike can take advantage of key person insurance. This kind of policy provides a cash infusion if a key employee or company member dies. In many cases, top or key people impact the company’s directional planning, and having a policy for this person can give the business time to steady itself during the loss of an important person.
Disability insurance: When it comes to selecting insurance policies, many people worry about what will happen if they pass, but not if they suffer a life-altering disability that keeps them from working or managing their company. Disability insurance can provide income if you are no longer able to work — an especially important consideration if your family relies on you to generate income.
Buy-Sell Agreements: Some businesses have contingency plans for the death of an owner or key employee. Buy-sell agreements are meant to help ensure the company can continue moving forward even in this situation. This kind of insurance acts as a contract among multiple business owners that determines how the deceased owner’s shares will be sold and for what price to ensure the business continues operating. Fellow business owners can purchase the shares, which can be helpful in situations where the owner has no heir, or family is not interested or knowledgeable in running the business.
How large should my policy be?
The needed size of a life insurance policy varies among business owners, especially based on annual income, responsibilities and other factors. It is difficult to give a specific number that you should consider based on a variety of elements. But, there are components that you should build into your evaluation of life insurance policies, such as:
- Your expected income per year and over your lifetime
- Personal and business debts
- Personal and future expenses
- Personal and family responsibilities and obligations
- The number of key employees you have
These factors can help you determine how much money would be needed to pay your debts and support your family while they make both life and business arrangements if you were to become disabled or die. While it is easy to look at the monthly premium as one more cost, a life insurance policy that considers in these things can make the difference when it comes to giving your family and employees enough time to gain their bearings before lenders, debt or other obligations come knocking. In the long run, this can allow a business to thrive down the road instead of shuttering its doors.
How do I go about getting life insurance as a business owner?
There are several kinds of insurance policies that benefit business owners and it can be tricky to determine which one is the best option. Evaluating your choices with help from a PolicyZip insurance specialist at (888) 211-5685 can help save time and money — two important things for busy business owners.