Life insurance is a monetary foundation that provides the required tools for small or large-scale businesses. Businesses can utilize life insurance as a method of financial security for the company and to attract the best employees, by providing monetary protection for the individual and their family.
In addition, business owners can use life insurance to secure their company, business partners, family and important employees in case of an unexpected demise. As a business owner your family is not the only group of people reliant on you, business partners and employees are dependent on you to earn an income. Here are a few points regarding the vitality of life insurance for business owners:
Replacing Income
Personal life insurance is highly important for a business owner. For instance, the family of the owner will be provided with sufficient funds through the death benefit in place of the income cut off to the family after the owner’s death. This could contribute to the educational cost for children, debt payments, mortgages and any other vital expenses.
Collateral Cover
A personal life insurance policy is important for a business owner if they have taken out a loan against the business in order to scale and utilized their home as collateral. Business owners should ensure to include any business-related debts in the life insurance policy and provide substantial coverage for their family after death. Failure to do so could result in the family losing their home and putting the family at financial risk. A business owner should compare life insurance policies and choose the most suitable option for optimum coverage.
Key Person Insurance
This is a specific category of insurance provided by the company to assist in successful operations of the business even if the owners or key employees die. A person who has brought in the highest sales into the company can be considered as a key employee and this individual’s death could cause a loss. Key person insurance assists a business in coverage of cash flow the individual would have brought in for a certain time frame. Therefore, the company will be able to look for a replacement with little to no monetary losses. In addition, if the business owner dies the company provides the death benefit to the company.
Buy-Sell Agreement & Term Insurance
When an owner dies the business owes the estate the owner’s share. With a buy-sell agreement the remaining partners can buyout the owner’s share of the estate. Generally, term insurance is used to validate the buy-sell agreement and ensure that the surviving partners have sufficient funds to buy out the beneficiaries of the owner.
Additionally, permanent life insurance can be used. This category of insurance provides premiums which are paid throughout the policyholder’s lifetime. Over a period of time the premiums earn an interest. Beneficiaries can obtain both the interest and death benefit after the death of the policyholder.
Therefore, life insurance is highly vital for business owners and many components within a business, as it ensures the financial security of the company, family, partners and key employees.
