In the day to day madness that can sometimes be running your own small business, it’s easy to forget about some of the most important components that ultimately protect not just you, but your loved ones as well. For example, something that far too many business owners overlook has to do with planning ahead for life insurance. So, do small business owners need life insurance? Let’s get into it here.
In summary, here are some reasons you would need life insurance as a small business owner.
- Family protection
- Buy/Sell Agreements
- Key Person Coverage
Other reasons include securing policies for business loans, often venture capitalists and loan officers will require you have coverage in place for the loan amount. We specialize in providing life insurance for small business owners so if you are looking coverage, contact us today. Otherwise, lets get into the details.
Protecting What You’ve Built
Life insurance is easy to ignore because you might assume that the worst simply won’t happen to you for years to come. Looking at the future this way, however, could make things difficult for your loved ones and family members in the event that something does happen to you. No one expects to be the victim of a sudden accident, but it can make for additional challenging emotions for your loved ones in the event that something does happen to you unexpectedly. This situation is never easy to think about, but the last thing your loved ones need to go through is worrying about your intentions for your personal belongings as well as the business.
Perhaps you’re intending that the sale of your business could be used to help support your family down the road. It’s really important that you have a life insurance policy in place to help you with these goals, as your existing business agreements might not allow for your loved ones to reap the reward in a business sale. You might, for example, have an agreement with partners that trumps your family’s rights in the event that you pass away. All of these circumstances can be avoided by having an existing life insurance policy to help you so that you can have the necessary peace of mind about your future and the company’s future.
You may realize that you need some level of life insurance in order to protect your family. In the event that something happened to you and you are suddenly no longer able to provide the income to support your family. This could be a devastating loss for your loved ones and present additional confusion and frustration during an already difficult time when they are coping with the grief of a lost loved one.
For business owners, however, there are additional components to consider in your financial plan of protection. You will certainly want to have a personal life insurance policy that helps to protect your individual family members if something were to happen to you unexpectedly, but you also need to think carefully about all of the risks you need to mitigate as a business owner.
Both your business and your family members are exposed to substantial risks if you were to pass away suddenly. Most people who suffer a disabling event or are killed in an accident or other incident, have not taken the proper precautions in order to protect themselves. This can lead to numerous unnecessary challenges. The good news is that by using life insurance, you can help to handle this risk.
When you have a small business, your loved ones are not the only individuals who are counting on you. Your death might also be a disaster for your partners and your employees and it could even mean putting the company you have worked so tirelessly to build in financial jeopardy. That’s just a brief outline of why you need life insurance as a small business owner, but there are so many more other things that you need to know.
Basics of Life Insurance for Business Owners
There is no doubt that your family relies on the income from your business in order to survive. You may have also taken out loans that are supported by your family’s assets to grow or to start the business. However, your family members may not be in a situation to afford or have the interest to take over the business if you pass away. They might also struggle to sell it on their own. This could leave them in a position to lose their home, particularly if it is collateral for a business loan.
Additionally, it could leave your loved ones without the income they so necessarily need. In the event that you have partners, your family might not be able to step into the role that you have served in and your partners might have trouble buying out your share. This means that your family may have to step in and assist with running the business during a difficult time or have no choice but to shut the doors and sell the company. And furthermore, your business may also rely on critical workers whose deaths would also seriously impact operations or earnings of the company. Therefore, you need to consider life insurance as a comprehensive protection not just for you and your family members, but also for the business and for your employees as well.
Types of Life Insurance You Should Consider
In each one of the scenarios outlined above, life insurance could protect your family or save your company. Each one involves a different type of policy. For example, you’ll want to have a personal life insurance policy that would assist your family members with paying off any business debts and covering living expenses after you pass away. This would also give you family some opportunity to have the time to figure out the next steps they handle the business.
“When you’re a small business owner, your life insurance needs spread beyond just family protection,” says Sean, founder of The Thinker’s Tantrum. He goes on to say: “while that is of the highest importance, as an entrepreneur you can’t forget that life insurance can protect your business in the form of buy/sell agreements and key person coverage.”
Buy/Sell Agreement
In the event that your business has numerous owners, all the life insurance policies can be consolidated through a buy-sell contract. A buy/sell agreement is essential for outlining what happens if someone suddenly departs the business. One of the primary reasons that individuals use buy/sell agreements is because they not only protect you in the event of a death, but they can also help you in situations where a partner or key person in the business steps away due to disability, divorce or other challenge. A comprehensive buy/sell agreement will outline that on the death of a partner where the remaining partners will have clear steps to follow in order to figure out what to do with the business. For example, the most commonly used situation allows remaining partners to purchase the surviving family’s shares at a price that has been previously agreed upon. The life insurance policy is then used to pay for the buyout.
Key Person Coverage
Finally, one of the last types of life insurance policies you should always consider as a busy business owner, is key person insurance. There are many different aspects within your business that can be very expensive to replace, but one of the most challenging assets to replace in any company are the people who work for you. Key person life insurance can help you accomplish this goal by giving you the financial support that is necessary to train someone new or to tap new talent. In the event that a critically important employee passes away, the life insurance policy in a key man policy pays out the business owners.
There are many different ways that the loss of an employee can influence your financial well being as a company. For example, you might have to take several months in order to train another person to handle this role. You might also be responsible for trying to cope with the financial losses of a key employee who was essential for business operations. There are so many reasons why small business owners need not have an eye turned towards the insurance market.
Covering All Bases
Insurance plays an important role not just in your personal life, but also for protecting your employees and the business itself. You have put many hours and a lot of energy and effort into building and growing your business. Therefore, you should not risk it all by having it exposed to substantial problems in the event that something were to happen to you.
Taking the proper precautions now by purchasing a life insurance policy for you personally, considering a buy/sell agreement and how it can empower individuals to make decisions about the future of the business if something were to happen to you, and using key man policies for critically important employees are all strongly recommended for any business owner. Small business owners face a wide range of risks and frequently have many different things on their plate.
Although it can seem like one more added step to take, it is relatively easy to get the life insurance policies necessary to guard your personal life as well as your business. Taking these steps now gives you peace of mind and also empowers others to act appropriately and to make informed decisions if something were to happen to you or to another person key to the business. In order to learn more about how life insurance policies can be used to protect you, your family and the future of your company, consult with an experienced independent insurance agency today. Evaluating your insurance needs on a regular basis is also strongly recommended to ensure that the policies are in line with what you need.
Start Here
The good news is you’re at the right place. We specialize in providing small business owners with life insurance whether it’s for family protection, buy/sell agreements or key person coverage. We shop around with all of the companies on the market to help you get the best product, at the best rate, at no extra cost to you. Feel free to call us at 888-492-1967 or hit the chat button below. Welcome to InsureChance!
