Freeman's Blog

life insurance for a business owner

If you own your own business, I bet you think about your vulnerabilities. If something happens to you, what will happen to your business? Who will take over when you are gone? How will your family afford to live without your income?  Business continuation is difficult enough under normal circumstances. However, if there is an unexpected death of a key person or business owner, complications increase exponentially.

Company-owned life insurance is one way to help protect a business from financial problems caused by the unexpected death of a key employee, partner, or co-owner. If the covered individual dies, the proceeds from this type of insurance can help in several ways. Here are some examples.

Fund a Buy-Sell Agreement

A buy-sell agreement typically specifies in advance what will happen if an owner or a key person leaves the company, either through a personal decision or because of death or disability. The death benefit from a company-owned life insurance contract can be used to purchase the decedent’s interest in the company from his or her heirs.

Keep the Business Going

If survivors decide to continue the business, they might need a break. This period when operations cease will give them a chance to develop a future plan. The death benefit can be used to help replace lost revenue. It can also pay costs associated with keeping the doors open, including rent, utilities, lease payments, and payroll. And, it may help the surviving owners avoid borrowing money or selling assets.

Replace Lost Income for Business Owner

If a business owner has family members that depends on their business income, the proceeds from company-owned life insurance could help replace the lost income. It would also protect the family’s quality of life while they adjust and move on.

The appropriate coverage amount will depend on several factors. It could be a multiple of the business owner annual salary or the company’s operating budget. Don’t forget to include details like the cost of hiring and training a successor and any debts that the family may have to repay.

You should have a thorough examination of a business and personnel before deciding on the exact amount of coverage you need.

The cost and availability of life insurance for a business owner depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individual is insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges. In addition, if a contract is surrendered prematurely, there may be surrender charges and income tax implications.

The loss of an owner can be devastating to a small business. A company-owned life insurance contract may help reduce the financial consequences if such a loss were to occur.

I want to give you “peace of mind”.

I can help you determine the right life insurance for your business needs.  Let’s meet for a FREE retirement strategy consultation at my office. Call 1-833-313-7233.