Can life insurance help protect small business owners?
If you’re considering buying life insurance, you may be thinking about it from the perspective of protecting and providing for your family. Individual life insurance is a worthwhile investment whether a person wants to buy an affordable term life policy to safeguard their income during their working years or a whole life policy to help build wealth.
But it’s not just families who benefit from a life insurance policy—small business owners can also benefit, as life insurance protects your investment in your business and can help offset issues that may occur if a key employee passes away.
Here are a few reasons why small business owners may want to consider life insurance policies for themselves and other major stakeholders or employees within their company.
1. Safeguard Business Loans and Lines of Credit
After a business owner passes away, life insurance can be invaluable to help keep the company running. By providing a cash payout to their family or business partners, the 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) also helps facilitate the transition of leadership to new individuals, ensuring that the legacy of the business is maintained and carried on. With life insurance, business owners can rest assured their hard work will not be forgotten 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 the unexpected passing of an owner. 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 smart choice for individuals and families, but it makes sense for small business owners, too. And with a partner like SelectQuote, you can shop for affordable life insurance coverage to meet your (and your business’s) needs. Our tailor-made technology searches for policies from dozens of trusted life insurance carriers to narrow down the options and find the right policy for your business’s budget—in just minutes.
When you fill out our form, we can connect you with an insurance agent who knows the ins and outs of life insurance for small businesses. Get started today!