Do You Need Small Business Life Insurance?

 

Anyone with a family, who has people depending on his or her income for their living expenses, needs life insurance to help meet those needs in the event of an untimely death.  Proceeds from a life insurance payoff can be used to replace the income lost when the breadwinner passes away.

If you're a small business owner, business life insurance also has an important place in your financial security plan.  While life insurance needs are unique to everyone, if you own a small business and have a desire to protect both your family members and your business interests should you experience a premature death, you need coverage that protects your concerns from every angle.

An unexpected death can upset the stability of both your family and your business from a financial standpoint.  Preparing beforehand with the right type and amount of life insurance can provide assurance that, should you die prematurely, you'll be able to adequately meet your current financial obligations.

One Policy or More?

If your small business is a sole proprietorship, a personal life insurance policy of adequate amount may be enough to cover your family's needs and your business liabilities after your death.  This may be especially true if the plan is for someone in your family to take over your business.

In most cases, however, it would be prudent to have two separate life insurance policies: one for your family and one for your business.  A business life insurance policy can serve a number of purposes:, such as: 

• Paying back loans that were taken out to get the business started or for later expansion.  Repaying these loans is especially important if personal property such as your house was used as collateral.
• Covering the cost of replacing a key employee, including you, the owner.
• Severance pay for staff in the event the business closes.
• Paying off buy-sell agreements.

Key Man (or Key Woman) Insurance

Key person insurance was specially designed for when the owner or very valuable employee of a business dies and financial support is needed to keep things running until the business can get back on its feet.  The number one salesperson, for example, may be responsible for the majority of business and, if he or she unexpectedly dies, it could take some time to replace that person and business profits may decline significantly during this time.  Insurance money can offer stability during this time.