3 Types of Life Insurance Policies Every Business Owner Should Have
What’s the first thing that comes to mind when we talk about business insurance? You may probably think about general liability insurance, which can protect your business from injury and damage claims. You might also think about property insurance, which is designed to shield your business properties from damages due to calamities.
While all these insurance policies are vital for businesses, there’s one crucial yet commonly neglected insurance policy every businessman should have: life insurance.
Here’s Why Small Business Owners Should Consider Availing Life Insurance
Let’s suppose you’re running a successful business that you’ve built for 15 years. You have 20 employees. What would happen if, all of a sudden, you meet a car accident and suddenly pass away? What will happen to your business partner, employees, and clients? How about your bereaved loved ones?
- Life insurance can protect your family and other dependents
Let’s state the obvious: life insurance is designed to providing financial security to your family. Should you pass away with loans and other business debts or liabilities backed by your family’s assets, the insurance amount can cover for them.
- Life insurance can support your employees and partners
Your business consists of partners and several employees whose primary livelihood depends on your business’ smooth running and sustenance. In the case of a permanent disability or untimely death, the insurance amount can be used to provide financial support to the entire business setup and help seamlessly run the business.
- Life insurance helps you avail business loans
While people often associate life insurance with the inevitable, unfortunate future events like death, it can also come with a few entrepreneurial benefits. An insurance policy can help you avail sizable business loans. Aside from acting as a constant validator for the banks or lenders to trust you, you may also use the policy as loan collateral.
Three Types of Life Insurance Every Business Owner Should Consider
1. Individual Life Insurance
Personal life insurance is coverage for the deceased business owner’s family. Aside from providing the bereaved loved ones with their living expenses, life insurance can also help them pay off any business debt the deceased owner might have left behind.
Many business owners take out loans using their personal assets, like home and vehicles, as collateral. The death may create a stressful situation where the business might be sold to cover the loan obligations. An individual insurance policy, whose amount may be equal to the obligations, defends against this type of catastrophe.
2. Buy-Sell Agreements
What if no one in your family is equipped to run your business? Chances are that they have no choice but to sell your business. If the market conditions are bad, they’re going to sell it at a discounted price. If you have business partners, who can take over your business, a buy-sell agreement comes in handy.
Buy-Sell Agreement is a contract that protects against the deceased business owner’s family members taking ownership of a business they may not have the desire or skills to operate. The agreement stipulates that on the death of a partner, the remaining partner/s can buy out the deceased business owner’s share at a predetermined price, and the life insurance pays for the buyout.
3. Key Person Life Insurance
Do you rely on key employees whose deaths would severely impact your business operations and earnings? Key Person Insurance is an insurance policy that protects your business against the death of a critically significant or revenue-producing employee.
The insurance policy provides the business owners with cash to cover for the costs of losing a crucial member of a business. The costs may include losing clients, contacts, and connections, as well as searching, hiring, and training a replacement.
Author Bio: Carmina Natividad is one of the daytime writers for Insurance Advisernet, one of the largest and most reliable general insurance brokers in Sydney Australia, providing high-quality risk management advice for business owners. She enjoys writing practical tips and tricks, making complex finance and business topics easier to digest.