Life Insurance Considerations for New Business Owners
December 9, 2021
DECEMBER 9, 2021: When you own a business, you're responsible for taking out your own health insurance policy as well as consider securing plans for your employees as a benefit. You also need to take out a life insurance policy, particularly if you have dependents or debt. Get the answers to your top questions about picking a policy here.
What Kinds of Life Insurance Do You Need?
How does life insurance help business owners? The answer varies depending on the policies that you take out. If your personal property overlaps with your commercial assets, invest in a plan that includes collateral coverage.
You also need personal whole or term life insurance policies. As its name suggests, whole term insurance remains valid for your entire life, whereas term life insurance expires after a set number of years. Additionally, whole term insurance includes cash value benefits during your lifetime, while term life insurance policies do not.
Finally, consider taking out life insurance, which applies only to your business affairs, not your personal ones. For example, your dependents can continue to invest in your company after you are no longer around. The policy can also cover any extra debts you've accrued while running your business.
Why Do Business Owners Need Insurance?
Business owners need life insurance so that their dependents can support themselves financially after they pass away. For example, if you have kids who haven't gone to college yet, your life insurance payments can cover their tuition. The policy also applies to their student loans, your house's mortgage, your credit card payments, and other everyday bills.
As a business owner, you may have more debt than the average person. By arranging debt payment through your insurance policy, you relieve your dependents from the burden of covering the balance. Furthermore, your business doesn't have to automatically shut down when you pass away. While the new owner may reconstruct your business model, your employees can keep their jobs and health insurance policies.
How Do You Handle Life Insurance if You Have a Co-Owner?
If you co-own your business with someone else you may wish to purchase key person life insurance on your partner. Another option is a cross-purchase agreement. This type of contract involves you and your co-owner buying life insurance for the other party. If you both still own the business when you die, the policy allows the survivor to buy out the rest of the shares. That way, the original owner's shares do not go to a third party.
Regardless of which option you choose, it's important that you and your business partner agree on the plan. Your buy-sell agreement should outline the details.
About 1891 Financial Life
At 1891 Financial Life, we pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs.
Our portfolio is extensive, ranging from various life insurance policies to our MYGA to support your financial needs no matter what stage of life you’re in. For more information, contact us at (855) 804-7424.