Personal life insurance is designed to protect your family when you pass away, but did you know that life insurance can also protect your company?
In fact, life insurance policies can solve issues in several areas of your business.
If you are a business owner, here are six important things you need to know about insurance.
1. Protect Your Company from Losing Key Employees
Most businesses – particularly small businesses and startups – rely on certain individuals within the company to succeed.
These people are key employees with expertise in their field, valuable connections, and general know-how. If these key employees were to pass away or become disabled, the business would certainly suffer a tremendous financial loss.
Key man insurance policies are designed to protect businesses from the financial impact of losing key employees, owners, or business partners. They are similar to life insurance, but the business owns the policy and the beneficiary.
When a key person (the insured) is unable to work due to illness or injury or dies, the business receives the death benefit.
These proceeds can be used to keep the business afloat while the key person recovers or cover the costs of enrolling and training a replacement.
To find out more about key man insurance, visit .
2. You Need a Business Succession Plan
Life insurance plays an essential role in business succession planning because it ensures that your business can continue after your passing.
Succession planning is pivotal to ensure that your business partners can continue the business – letting the business estate plan dictate how the company transitions can cause a lot of issues and red tape.
Work with an attorney, an accountant, and a life insurance broker to secure the best policy to facilitate your succession plan. You’ll need to get a formal evaluation of your company initially, but make sure you keep your policy updated to factor in the coverage needed for projected growth as well.
3. Executive Bonus Plans Benefit Business Owners and Employees
When it comes to executive bonus plans, there are benefits for both the employer and employee.
An executive bonus plan is a compensation method that rewards top-performing employees by paying for their insurance policy.
There is no administration required on the owner’s part, and setting up the plan is simple – the biggest benefit to the employer is that the costs are tax-deductible.
Although the employer pays the premiums on the policy, the employee is the life insurance policy owner and can nominate a beneficiary. If the employee changes employers, the policy remains in place, and the death benefit is free of income tax.
4. You Can Fund a Buy-Sell Agreement with a Life Insurance Policy
Buy-sell agreements are usually needed when there are multiple business partners or owners. It is a legal agreement that stipulates that if one of the business partners dies or becomes disabled, their share in the company can be sold to the other partners.
Buy-sell agreements eliminate the need for new stakeholders who may not have their best interests at heart, allowing for an orderly business succession plan.
Buy-sell agreements can be financed by life insurance policies, and they are designed to cover the liability of the partner who leaves while protecting the business’ interests.
5. Collateral Assignment Makes it Easier to Secure a Loan
Collateral assignment of a life insurance policy can be utilized as means to get a loan – which is especially useful for business owners who require capital to buy a company or start a company.
You, the insured, can use your life policy as collateral for the loan. Life insurance makes for excellent collateral because the lender is guaranteed repayment if the person who took out the loan dies.
Usually, when you purchase life insurance, you name the beneficiary. A beneficiary is connected to the insured through a financial and insurable interest. Beneficiaries are usually family members, spouses, business partners, or companies.
You will select the primary beneficiary with collateral assignment insurance, but the lender will be assigned the collateral signee. This way, if you were to pass away before repaying the loan, the lender will get the death benefit, and the primary beneficiary will receive the balance.
6. Whole Life Insurance is Best for Business Owners
A term life insurance policy remains valid for a specified period – usually between 10 and 30 years. In comparison, a whole life insurance policy will provide coverage for the rest of your life as long as the premiums are paid.
Although whole life insurance is way more expensive than term life insurance, it provides a guaranteed payout – no matter when the insured individual passes away.
Whole insurance is better for business owners because it offers one key advantage that many other types of life insurance don’t – it earns cash value. Due to dividends paid and interest earned, the cash value of whole life insurance accumulates over time.
The cash obtained from the whole insurance can be utilized to pay your premiums, borrowed against in the form of withdrawals and loans to invest in your business, or it can be surrendered to supplement your retirement.
Because purchasing whole life insurance comes with a guaranteed payout, it is the best option to provide your family or business partners with more security when you pass away. If business partners purchase whole life insurance policies for each other, the beneficiaries are guaranteed a payout – even if the company has dissolved.
Another benefit of purchasing a whole insurance policy is that the beneficiaries will not pay tax on the death benefit. And the best aspect of these policies is that they allow the owner to accumulate wealth, provide for retirement and take out loans tax-free.
Whole insurance is excellent for business owners because it is an asset that provides flexibility, security, and growth – whether you are the owner of a small or large business.
