Small businesses are an essential part of the economy and the community. However, owners may overlook a crucial aspect of business planning when running a business: life insurance. Whether you are a one-person show or managing a complex operation with multiple employees, life insurance can prove valuable to your business plans. Alison Salka, a senior vice president at LIMRA Research, an insurance trade group based in Connecticut, suggests that small business owners need life insurance because the well-being of their families, employees, and clients is at stake if an owner or essential team member dies unexpectedly.
Life insurance can help you or your business avoid liquidation, pay estate taxes, provide income for loved ones, or conduct operations for your clients. Certain types of coverage for business owners can also ensure that ownership and shares are transferred reasonably to partners.
To make the best choice for your needs, it is essential to understand the critical types of life insurance for small businesses. If you run a small company with no employees and are the breadwinner for your family, an individual life insurance plan like term life insurance may be sufficient to meet your needs. Individual life insurance plans are popular among small-business owners because they serve personal and business purposes. You'll want to buy enough coverage to manage your family's personal debts and living expenses, primarily if they rely solely on your business income.
Sometimes called key man insurance, critical person life insurance protects your business if an important employee or member dies. Some small businesses rely on specific individuals with unique skills and knowledge, like skilled developers, CEOs, or spokespersons. Critical person insurance gives you room to maintain your business's value if you lose an essential team member. A key person life insurance policy can cover the expense of recruiting and training a new employee or replace the lost business income the employee would have produced.
A buy-sell agreement establishes a clear ownership transition if a partner dies, retires, or becomes disabled. This contract provides a framework for co-owners or key employees to buy out a deceased owner's stake in the business. Business partners may take out life insurance policies on each other as part of a buy-sell agreement so they have the funds to purchase the company.
Large and small businesses can offer group life insurance as a benefit to employees. These policies can be cost-effective for business owners and employees since premiums paid by employers are sometimes tax-deductible as business expenses. Group plans can make coverage accessible to many people, regardless of pre-existing medical conditions. Additional benefits like group life insurance can help you attract and retain top talent.
To insure yourself or your business, follow these steps. First, decide how much coverage you need. Consider your personal and business expenses to calculate how much your family or business would need to survive without you. Second, choose which type of life insurance you need. The size of your business and how you want ownership handled after you die can help you select an individual policy for yourself, a buy-sell agreement, critical person insurance, or a combination of multiple policies. Third, shop around and get quotes. Compare life insurance quotes from three to five companies online or over the phone. Working with Glenn Stewart, a life insurance broker, can help you find coverage and negotiate the best terms for your needs.
No matter how much life insurance coverage or what type you choose, understanding your business's coverage needs is a critical first step for a small-business continuity plan. Preparing your family, heirs, and business ahead of time can help everyone feel at ease and confident with your long-term plans.
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