Benefits of Life Insurance for Small Business Owners
Individualized Life Insurance for Business Owners
As an entrepreneur, your needs for life insurance will differ from others. You want to make sure that both your business and personal assets are protected in the event of an unexpected tragedy. This is where life insurance comes in. By having a life insurance policy, you can ensure that your family and business are financially secure after you’re gone.
Planning for the Future of Your Business
It’s essential to plan for the long-term financial future of your business, your family, and anyone else who is financially dependent on your company. This means setting goals and making plans to achieve them. With the current Covid-19 pandemic, businesses have been greatly affected, and having a group plan can be helpful in alleviating financial burdens.
Buy-Sell Agreements and Key Man Insurance
In the event of a partner’s death, having a buy-sell agreement in place can help ensure the surviving business partner has enough funds to buy out the deceased partner’s portion. This is also known as key man insurance. It’s crucial to reflect the buy-sell agreement in the proposed insurance policy for business owners, including the amount at which shares will be purchased.
Insurance for Key Employees
Key person insurance is also essential to the success of your business. If there are individuals in your company whose death or disability would have a significant impact on sales or productivity, they are considered key employees. Purchasing an insurance policy on these essential employees can help cover the revenue that they would have generated during a specific period of time. This gives your company time to recuperate and rehire and train a new candidate to fulfill that position. It’s essential to have a broker who can help you plan properly with the right life policies, retirement savings, and retirement income that fit within your company budget.
Start Early for Lower Costs
It’s wise for small startups to purchase their small business insurance when the company is young. This is because the cost of insurance will be lower, and there will be a track record with the company while there are fewer employees. As time goes by, having fewer employees will result in fewer claims and better rates. Essential employees may only work for a few years, so it’s usually better to insure them with a term life insurance policy.
Types of Life Insurance
Types of Life Insurance Policies for Businesses
Life insurance is an essential part of financial planning for business owners. There are different types of life insurance policies available, and it is essential to choose the one that best suits your needs. Here are some of the most common types of life insurance policies for businesses:
Permanent Life Insurance
Permanent life insurance policies, also known as whole life insurance, require policyholders to pay premiums for the rest of their life or for a specific period. Some permanent life insurance policies can be paid up over a period of years and then considered a paid-up insurance policy. Permanent life insurance can be used to finance a buy/sell agreement under certain circumstances. It is important to understand how cash value works before considering this type of policy.
Term Life Insurance
If you have dependent family members or others, term life insurance is the most straightforward solution. If your business is not a family business, you will probably need two life insurance policies: one where the business is the beneficiary and one to cover your family’s needs. Having this insurance in place will ensure that if something were to happen to you, it will not spell the end of your business. Life coverage can provide the company with enough cash to pay off debts such as loans, workers, suppliers, and rent. The premiums can also help the company in terms of employee benefits and tax advantages for businesses.
Universal Life Insurance
Universal life insurance policies are broken into investment components and the cost of insurance. This type of policy is suitable for knowledgeable investors who understand the investment component. The cash value can be an excellent asset if done correctly, but it is crucial to speak with a professional who understands this type of policy before deciding whether it is right for you. A term policy may be a better option for some.
Frequently Asked Questions
Are the employees a factor when purchasing life insurance for small business owners?
When it comes to purchasing life insurance for small business owners, the number of employees is not a determining factor. Regardless of the business size, owners can obtain group life insurance as members of the board or sole owners. Our knowledgeable advisors can guide business owners through the life insurance planning process and help them make the best decision for their business needs.
How much would a 500,000-life insurance policy usually cost?
The cost of a $500,000 life insurance policy varies across insurance companies and depends on the type of insurance and the overall health of the group. However, group insurance offers the benefit of spreading the risk across the entire group, making it a smart and cost-effective option for small business owners.
Can business owners deduct premiums?
As for deducting premiums, it is dependent on the specific details of the situation and how it was set up. Business owners should consult their accountant for a clear understanding of their deductible expenses. Our agents are more than happy to collaborate with their accountants to ensure that they are getting the best out of their plan.
Why is my bank asking me to get an insurance policy for the loan as a requirement for approval?
In some instances, a bank may require business owners to purchase life insurance to cover loan repayment in case of the owner’s untimely demise and outstanding debt with the institution. This is not a standard requirement, but it is essential to consider the bank’s interests, just as a business owner may want key man insurance to cover their interests. Each situation is unique, and it’s best to consult with a knowledgeable advisor to make the right decision.