Updated: Feb 28
If you're a small business owner, you likely already understand the critical importance of having the right insurance to protect your business.
From general liability to personal property coverage, insurance is there to help your business recover financially from a serious claim. But what about life insurance? Unfortunately, life insurance is a type of coverage that small business owners may overlook or don't think they need.
You've worked hard to grow your business and to provide for the people you love, so don't risk it all by not having the right life insurance in place. Read on to learn about the different types of life insurance for small business owners.
Key person life insurance
Key person life insurance (also known as key man, key woman, or business life insurance) is meant to provide your business with enough readily available cash should a critical employee or other person vital to the success of your business were to die. These policies are typically purchased by a company who is also the beneficiary in the event of the essential employee's death. For example, does your business rely on an individual who has provided positive benefits to your company's bottom line (their connections, experience, number of years with your company, etc.)? What would happen if they were suddenly gone? Life insurance can provide you with the money needed to help make up for the lost revenue, as well as buy you some time to find and train their replacement. So, ask yourself, if you were to lose a key employee, would your business experience a serious financial setback? If yes, then you may want to secure a key person life insurance policy.
Funding buy-sell agreements
A buy-sell agreement (also known as a buyout agreement), is a contract between the co-owners of a business. In the event of an owner's death, the agreement allows the surviving co-owner to buy the deceased business owner's share of the business from the heirs or estate at a predetermined price. But how can you be sure that you'll have enough money to buy that share of the business upon your co-owner's death?
Life insurance policies are typically used to fund buy-sell agreements. For example, individual owners in your business buy a life insurance policy on the lives of each co-owner. Upon the death of a co-owner, the benefits are paid to the surviving owners. If ensuring the continuity of your business is important to you, talk to your financial representative or life insurance professional about setting up a buy-sell agreement that's funded with a life insurance policy.
Individual life insurance for small business owners
Commercial businesses can carry a great deal of monthly overhead. From rent to inventory, to loans and vendors, bills must be paid to keep the business operating. If you were to die tomorrow, would your loved ones be able to keep the business operating or be forced to liquidate and sell?
Buying an individual life insurance policy as a small business owner can help ensure that upon your death, your loved ones will have the immediate cash to help keep the doors open. This is money that can be used to pay the bills, or even fund the salary of a new key employee to help run the business after you're gone.
Life insurance may seem like just another bill, but as a small business owner, it's an essential part of ensuring that the business you've worked so hard to build has the chance to grow and thrive.