Do you have a business that depends on you? If so, you may want to consider the importance of life insurance for business owners. Aside from potentially helping your family, a life insurance policy may help your small business if you were to die. Having the right policy or policies in place can help you leave a legacy for not just your loved ones, but for your employees, partners and business as well.
Here's how a life insurance policy may be able to help business owners.
How Life Insurance Could Help Your Family
If you have family or loved ones relying on your income, life insurance can be one way to help protect them in case something happens to you. This can be true for both employees and small business owners. But small business owners may have an additional need for life insurance. Not only can it help provide the income your family might need if you were to die, but it can also help to protect your family from the financial consequences stemming from your business.
For instance, your family may not be able to take over your business in your absence and may be forced to sell it. Without the financial cushion of a death benefit, your family may have to sell the business quickly and for less than it is worth. Having enough life insurance could help give your family the time they need to either figure out how to keep the business running or to sell it for what it is worth.
How Life Insurance Could Help Your Business
Small business owners may have more than just their family relying on them. For example, what might happen to your partners, employees, and the business itself if you passed away? There are a number of ways to help protect your business with a life insurance policy. Here are two of the common ways.
Key Person Insurance
Key person insurance is designed to help keep a business afloat after the owner or other integral team member dies. Your business would purchase this insurance and make itself the beneficiary. Upon your death, the insurance company would pay the death benefit to your business. That money can then be used to help find your replacement, help cover the costs of losing business in the immediate aftermath of your passing, or help pay creditors and employee severance if the business must shut its doors.
If you own your business with one or more co-owners, the right life insurance policy can help make your buy-sell agreement more feasible. A buy-sell agreement stipulates what will happen to a business after an owner retires or dies. In general, the buy-sell agreement sets up the price and terms of sale for the share left behind by the deceased or retiring owner. Co-owners with a buy-sell agreement who purchase life insurance on each other (also known as a cross-purchase agreement) can use the proceeds of the death benefit to buy up the decedent's share. Without a life insurance policy in place, your co-owners may find it financially impossible to buy your share or keep the business afloat.
The Bottom Line
You may want to consider the importance of life insurance for the future of your family and your business. Life insurance for business owners can do more than just help ensure financial security for those you care about. It can also help your company pass along to the next generation and help secure your legacy.