As a business owner, you want to make sure that your business is successful, even if you aren’t around to run it. Life insurance allows you to continue to protect your family and your business after you leave. Read on to find out why every small business owner should consider life insurance.
Why do you need life insurance?
Most people think of life insurance after having a baby. It is a common way to protect a child’s future. If a parent dies, life insurance benefits can help cover the child’s needs such as education, shelter and food.
Consider your business. Chances are, you think of him as your baby. Like a parent, you can use life insurance policies to protect your business in the event of death. With the right coverage, your life insurance can also protect your family against unforeseen debts or liabilities related to your business.
What type of life insurance do you need?
In general, there are two main types of life insurance: term and whole life insurance policies. Term policies provide coverage for a number of years. Whole life insurance lasts the life of the insured person. Term life insurance is often much cheaper, but whole life insurance policies include a cash value that can increase over time.
Choosing between a term policy and whole life insurance is only part of life insurance for small business owners. You will also have to choose between three types of policies:
- Key person
- Purchase-sale agreement policies
Personal life insurance
A personal life insurance policy isn’t directly tied to your business, but it could provide the protection your family needs in the event of an unexpected death. As a small business owner, you might not get the benefits of someone in a more traditional job, like employer-sponsored life insurance.
Personal life insurance also offers the same benefits as non-business owners. First, it helps replace the income that your family will lose in the event of death. The death benefit from your life insurance can be used by your dependents to pay for housing costs, your children’s school fees, your spouse’s retirement income, and other daily expenses that your income has contributed. to cover.
The second benefit of a personal life insurance policy is to cover potential debts that come due after your death. If you’ve used your home as collateral for a business loan, for example, your life insurance can help you pay off the business loan so your family won’t worry about losing their home. It can also help pay for others inherited debt your family could face like auto loans or credit card debt.
Key person insurance
A key person life insurance policy is designed to protect a business in the event of the death of an important member of the business. The company buys the policy and pays the premiums. The police are insuring a key person. If that person dies, the business is the beneficiary of the death benefit.
Key person policies are the most common for business owners, founders, and senior executives. Employees with essential skills or specialized knowledge may also be insured by key person insurance. Businesses use key person insurance to cover the costs of hiring and training a replacement, creating new strategies, changing focus, or covering the costs of closing the business.
Purchase-sale agreement policies
Business owners who have co-owners or partners need a buy-sell agreement. This agreement defines what happens to an owner if he leaves the business. It describes the terms, such as the price, for other business owners to purchase the exiting owner’s share.
Life insurance can be used with a buy-sell agreement to define what happens to an owner in the event of death. Known as a cross-purchase agreement, it works like this:
- Each homeowner buys a life insurance policy from the other.
- If an owner dies, his partner uses the life insurance proceeds to buy his share of the business.
The shares of the deceased owner can also be purchased by the company itself using an entity purchase plan. In this case, the business purchases life insurance policies for each owner and uses the proceeds to buy the shares if an owner dies.
Related: Best banks for small businesses
How to use life insurance as collateral on a small business loan
One of the unexpected benefits of a life insurance policy for small business owners is the ability to Commercial loan. Some lenders will allow you to use a life insurance policy as collateral for a small business loan.
The insurance policy guarantees that you will pay off your loan in the event of death. In the event of death, your lender is first paid by the death benefit to cover the remaining balance of your loan. Any remaining funds from the policy then go to your beneficiaries.
How To Find Life Insurance As A Small Business Owner
Choosing the right life insurance policy as a small business owner is like finding a policy for your personal use. You will need to weigh your options to find what works best for your small business.
- Define policy needs: If you are going for a temporary policy, you will need to consider the length of time you need. Businesses with multiple owners or key stakeholders will need to choose who is covered by key person policies or whether a buy-sell policy is needed.
- Obtain sufficient coverage: Getting the right amount of coverage is an important part of purchasing life insurance. If you get too little, your death benefit may not be enough to cover business debts like loans. Also, be sure to consider the long-term needs of your dependents, such as tuition or mortgage payments.
- Compare the prices: Don’t settle for the first option that fits your budget. Shop around to find the coverage and price that’s right for you.
Once you’ve found the right policy for your business, you’re ready to apply. The process works the same as for any other life insurance policy:
- Apply for coverage
- Get a medical exam
- Wait for approval
- Sign your policy
- Pay your premium
Best life insurance options for small businesses
Policygenius works as an online broker to allow you to compare quotes from multiple life insurance companies. The tool helps you find the right policy by guiding you through the process. This means that you will not be spammed by calls and emails from insurance companies.
You don’t have to pay any additional fees to use Policygenius. However, they do not offer insurance options in all states, so you will need to check the options available in your area.
Leap Life is an online life insurance broker. They allow you to compare the term life insurance policies of various insurance companies. One cool feature is the ability to apply for a policy online without a medical exam required. If you want quick coverage to use as loan collateral, Leap Life might be a good option.
The downside to Leap Life is that there is no online option for whole life insurance policies. You will need to call them directly or find another provider if permanent life insurance is right for your business.
Give only offers life insurance. You can choose from the following term life options: 10, 15, 20, 25 and 30 year terms.
You won’t need to have a medical exam and there are several payment options, including ApplePay. Coverage options go up to $ 1.5 million.
FAQs: Life Insurance For Business Owners
Small business owners should have life insurance, as should any employee or stakeholder whose skills or knowledge make them critical to the success of the business.
Key Person Insurance is a life insurance policy written by a business to insure a person vital to the success of a business. It is generally used for business owners and senior executives. The company buys the policy and is the beneficiary of it. If the key person dies, the business receives the life insurance benefit.
You can use the life insurance proceeds to cover trade debts, keep the business going, or shut down the business. For example, if the business had to close, the funds could be used for severance pay for employees.
Yes, you can usually use a life insurance policy as collateral to help you get a small business loan.
Life insurance can help protect your family and your business in the event of an unexpected death. You may want to consider a personal policy and a company policy. Start protecting your business today by getting quotes from top life insurance providers.