Can life insurance help protect small business owners?
If you’re considering buying life insurance, then you already know that having coverage offers invaluable peace of mind for you and your family. Whether you want to buy a term life or whole life policy, life insurance is an important investment to safeguard your income and keep your loved ones protected. But it’s not just families who benefit from a life insurance policy—small business owners can also benefit.
Just as life insurance can protect your family, it can also protect your investment in your small business. It can help ensure that a small business continues to operate smoothly in the event of the owner's death and can provide the necessary funds to cover outstanding debts, employee salaries, and other financial obligations, preventing the business from facing severe financial strain and protecting the owner’s legacy.
If you’re interested in purchasing life insurance as a small business owner, there’s much to consider. From the policy type, to the amount of coverage, to whether or not you need additional riders, plenty of factors contribute to finding the right policy for your needs. Here’s what small business owners need to know about purchasing life insurance.
1. Safeguard Business Loans and Lines of Credit
When a business owner passes away, life insurance can be key to helping keep the company afloat. And with nearly 40% of businesses failing due to running out of capital, it’s important to make sure your small business has a financial safety net in place. When life insurance benefits are paid out to the owner’s family or business partners, those funds can be used to pay off loans and credit lines that have been taken out in the event of an unforeseen illness or death. This money, called the death benefit, can also help facilitate the transition of leadership, ensuring that the legacy of the business is maintained and carried on. With life insurance, business owners can rest assured their hard work will be safeguarded when they pass away.
2. Key Person Insurance
Business owners can purchase life insurance policies on key employees that make the benefits of the policy payable to the business. This type of insurance is often referred to as “key person” life insurance and is designed to protect companies from financial losses due to the death of a key employee. In the event of their death, the proceeds are paid directly to the business, allowing it to fund operations and offset expenses that result from the key person’s death.
Key person life insurance also helps businesses maintain continuity by funding the recruiting and training of a replacement for their lost employee. With this type of coverage in place, companies can rest easy knowing they are financially secure in case of an unexpected loss.
3. Buy-Sell Agreement
A buy-sell agreement is a legally binding contract between two or more people who own a business together. It outlines the terms, conditions, and procedures for what will happen if one of the owners passes away or wants to leave the business. This helps ensure the remaining owners have control over their portion of the business and that their rights are protected.
Life insurance can be used to fund a buy-sell agreement, providing cash to pay for any obligations triggered by an owner's departure. While this may not be top-of-mind for business owners today, having a buy-sell agreement in place along with life insurance coverage can provide peace of mind in case of an unforeseen event down the road.
4. Provide Security for Your Family
Business owners work hard to provide financial security and stability for their families. Life insurance is a way to ensure their family's needs are met even in the event of an owner's unexpected passing. Individual life insurance can be used to create a lump sum of money that can be given to the business owner's family should they pass away.
These funds can be used for any purpose, from covering funeral expenses to replacing lost income. With life insurance, business owners have peace of mind knowing they have provided for their family in case of an untimely death.
Find the Right Life Insurance For Your Small Business with SelectQuote’s Help
Life insurance is a wise choice for individuals and families, but it makes sense for small business owners, too. With a partner like SelectQuote, it’s easy to shop for affordable life insurance coverage to meet your (and your business’s) needs. Our licensed insurance agents are able to search for policies from dozens of trusted life insurance carriers in just minutes. We have nearly 40 years of experience helping people from all walks of life, including small business owners, find life insurance. Reach out to get started finding the right policy for your needs.
