Life insurance plays an important role in retirement and financial planning for most people and their families. It helps to provide financial protection and security by ensuring our loved ones will be taken care of – perhaps by paying off debts, purchasing the family home outright, or covering university expenses for minor children.
Life insurance can also act as an investment tool, providing a way to accrue cash value, borrow against the policy, and use it as collateral for a loan. Small business owners can benefit from all of these advantages of life insurance and more.
If you are a small business owner, you may need to have life insurance to protect your business and your business partners. It may be a part of your operating agreement and can form a valuable asset to your business.
This handy article explains more about the types of life insurance policies you can purchase and why it’s important to have life insurance for business owners. Our blog has more resources you can check out when you have time, too!
Life Insurance is Important for Business Owners
Life insurance for business owners is critical insurance coverage to consider when establishing your business. Every business is unique and has its own needs, but one thing all businesses have in common is the need for strong insurance protection – and life insurance for the owners and partners is one important insurance coverage to have.
All life insurance policies are not created equally, however. Some offer advantages like policy loans, withdrawals, and interest earnings. Life insurance policies can be an investment vehicle that grows over time as it accrues cash value, making it an asset to your small business.
If you plan to sell your business, having proper life insurance in place for the owners and partners can add to the value of your business. Succession planning is important to the longevity and sustainability of your business.
Life Insurance Protects Small Businesses
You already know it’s important to have the right insurance coverage for your small business. Things like Workers’ Compensation, Commercial General Liability, and Commercial Auto Insurance are all clearly important to protect the daily operations of your company.
But life insurance is just as important to maintaining your small business. If you have other owners or partners you’ve established your business with, you may have even written into your incorporation agreement that all partners will carry sufficient life insurance. This protects the business and surviving partners if one partner dies.
Having life insurance as a business owner can also help to protect your heirs so your family doesn’t become burdened by the business operations. A life insurance policy to protect your business interests can prevent your family from having to use funds from your estate to run the business. And planning ahead means no one is scrambling trying to protect the business during a time of grief.
Types of Life Insurance Policies Available For Business Owners
You’ll find three types of life insurance policies in your research. Each type can play a role in your financial plan as a small business owner, so make sure to review your options thoroughly. Your financial advisor or agent can provide more help as you determine which type of life insurance to purchase.
Whole Life Insurance
Whole life insurance is sometimes also called permanent life or straight life insurance. It is a permanent policy that has steady premiums over the course of the policy. Many people find value in whole life policies because they accrue cash value over time and they have a predictable cost, which makes it easy to plan around the premium with your other business expenses.
Universal Life Insurance
Universal life insurance is another form of permanent life insurance. With a universal life insurance policy, the policy grows in cash value and lasts for your lifetime, assuming you continue paying the premiums. When you pay your premium, the cost of your policy is covered and interest is earned – eventually, the accumulated value of your policy will exceed the policy costs (which consist of the mortality costs and policy administration costs).
Term Life Insurance
Lots of people start out by purchasing a term life insurance policy – they are basic life insurance policies that are generally affordable. You can decide the length of your policy as well as the amount of coverage you would like. When your policy term ends, the policy also ends. Depending on your policy, it may be convertible to a permanent one if various conditions are met. Read your policy or check with your agent if you own a term policy you’d like to convert.
Two types of term insurance policies are available – level term and decreasing term. A level term policy is the more popular type, and it refers to a term life insurance policy that will pay out the same death benefit regardless of when during the policy term the death occurs. A decreasing benefit policy, on the other hand, has a death benefit that decreases over the time the policy is in force.
Some insurance companies have an additional option available on some life insurance policies called ‘return of premium’. This benefit is available at an extra cost and with additional conditions, but if chosen it means that if no claim is filed during the term, the carrier will return the premiums to the policyholder.
Purchasing Life Insurance as a Business Owner
As with most insurance purchases, many different insurance carriers sell various options of life insurance for business owners. Shopping around to compare rates and options is often a good way to secure the best rate and policy for your needs. Talking with your family, business partners, and financial adviser is helpful as you research your options and purchase your life insurance policy.
Life insurance for business owners is important coverage to have. We have additional resources on our blog you can check out to learn more about this important coverage.
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