Protect your business with life insurance
Starting and running a small business is a lot like getting married and starting a family. It will soon consume most of your waking hours, constantly be on your mind and reward you in ways you can't even imagine. A business, just like a family needs to be protected so it is important that every small business owner explore their options when it comes to life insurance. There are a variety of ways for you to use life insurance to protect your business and family:
One of the simplest ways to ensure your family and business will be protected in the event of your death is a term life insurance policy. These policies have a set death benefit that is paid if the insured dies within the term of the policy. The death benefit can be used by a business partner to buy out your family, pay out employees if the business must close, or to make sure your widow and heirs have a source of income as they adjust to their new situation. Term life is simple and inexpensive.
Buy-sell agreements for partnerships
Life insurance policies for each partner within a small business is often an excellent idea. A life insurance policy ensures that the business has the necessary capitol to buy out a deceased partner's family. In addition to a life insurance policy, it is important that you have a detailed buyout plan in place that clearly states how the business succession will proceed.
Key person insurance
As your business grows there is a good chance that you will come to rely on one or two key employees. A survey by the National Association of Insurance Commissioners found that 71 percent of small business owners claimed they were very dependant on one or two key people.
A key person policy can help your business weather the interruption if one of your key people suddenly dies. The death benefit can replace the income brought in by the deceased employee or help fund the search for a new employee.
Split dollar agreements
This is a form of life insurance that splits both the premium and the death benefit between two individuals or an entity. These agreements can be used in a number of different ways in a small business setting. In most cases the premium of a life insurance policy is either paid in full by the business or it is split between the business and an employee. Upon the employee's death, the business is reimbursed for the premiums it paid and the remaining benefit goes to the employee's family or designated beneficiary. These agreements can be used to help employees afford a life insurance policy or can be useful in succession planning.
Paying off a credit line
As you grow your business it may be necessary to use bank loans to cover short-term cash flow issues or expansion. A bank will often require a personal guarantee, especially when your business is young. If you die with outstanding loans, the bank could come after your personal assets. A life insurance policy can be used to cover these obligations.
Life insurance can be very useful in the small business world. Be sure you completely understanding any policy you decide to purchase. Doing plenty of research is the best way to make sure you are fully covered in the event that the unexpected happens.
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