Areas Where Entrepreneurs May Need Life Insurance

by Jeff Rose on March 26, 2015 · 0 comments

Everyone needs to have life insurance. But when you’re a business owner, life insurance needs are much more specific. You may find that you need to have several policies, each designed for a very specific purpose. By working with an individual agent, we will be able to help you obtain quotes from the top life insurance companies, such as Banner Life, for all different types of policies.

Life Insurance For All of the Usual Reasons

This is the basic life insurance coverage that you need to protect and provide for your family in the event of your death. Though you will ultimately have to settle on a certain fixed amount of coverage, it helps to know what your family’s specific needs will be when you are no longer around to provide for insurance for business owners

Here are some of the more basic possibilities:

  • Sufficient funds to pay for final expenses
  • Funds to cover lingering medical expenses (there are always deductibles and co-insurance provisions and sometimes even disallowed medical expenses)
  • Enough money to cover your family’s living expenses for at least the first few years after your death
  • Funds to help provide for college for your children
  • Funds to payoff major debts, like student loans or a mortgage

These are the kinds of expenses that life insurance is designed to help you with, whether you are self-employed or salaried. For most households I recommend just getting a cheap term life insurance policy for at least ten times your annual income and this will provide what most people need.  But when you’re self-employed, there are other types of life insurance coverage that need to be considered.

Covering Business Related Debts and Obligations

If you run your own business, it’s likely that you have certain debts and other obligations related to the business. Even if the business will be end upon your death, there may be obligations that will still need to be paid even though the business no longer exists to pay them.

This can include debts that were incurred to create, grow, or maintain your business. It can include credit lines, car loans, or even a mortgage on business property. Beyond formal loans, there may be other obligations that will need to be covered as well. These can include accounts payable balances, income- and sales-tax obligations, and the remaining term on unexpired leases.

Even though you will be gone, and your business will be closed, these obligations will generally survive the business. If they cannot be paid out of business income or assets, they will need to be paid out of personal assets, which means any assets that your family has.

You should make an approximation as to the total amount of these obligations, and make sure that you have a life insurance policy that is large enough to cover them all, and is designated specifically for that purpose.

A Policy To Enable Your Business Partners to Buy Out Your Share

This kind of life insurance policy is common in partnerships and small corporations. In such business formations, each owners contribution to the business is so significant that the death of that person could cause the collapse of the business.

All the partners or owners in the business should maintain a policy on one another that would pay proceeds to the surviving parties in the event of the death of one. It’s the kind of life insurance policy that will serve three very important purposes:

  1. It will enable the surviving owners to buy out the share of the deceased owner, transferring full control over to the surviving owners.
  2. It can also provide an infusion of capital that will enable the surviving owners to adjust to the loss of the deceased partner.
  3. The proceeds of the policy that will be paid to buy out the deceased owner’s share, will be paid to his or her family, and represent additional funds for the deceased owner’s loved ones.

This type of life insurance will be a business expense, and is absolutely essential for any enterprise that has two or more owners. Not having such a policy could result in the surviving owners losing the business entirely.

“Key Man” Life Insurance

This kind of life insurance is not the type you carry on yourself as a business owner, but rather one you take out on the lives of employees who were key players in your business, as the term “key man” implies. This is the kind of employee who, were he or she to die, their loss would cause a financial hardship for your business. Under extreme circumstances, it could even result in your being forced to go out of business.

A key man policy could be taken on a life of anyone who works for you that your business can’t do without. This can include the general manager, a top salesperson, or a person who has very important industry contacts. It can also be taken on an important production person, a master mechanic, or an IT person who is a major player in your business.

The proceeds of this policy would provide you with the funds necessary not only to replace that person following their death, but also to cover business losses that may happen as a result of their loss.

As you can see, business owners need look a lot deeper at their life insurance needs than salaried people do. There are a whole bunch of obligations in a self-employed persons life that other people don’t have. If you are a business owner, you should meet with an insurance broker to fully review your life insurance needs.

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