As a small business owner, you invest time, energy, and plenty of cold hard cash into your company. Just as it’s wise to protect your personal assets with life insurance, it’s also important to protect all that you’ve built through your business. You’ve worked way too hard to leave it all to chance, right?
If you haven’t explored your options yet, here’s an overview of the main types of business life insurance available. For any of them, you can choose either term or permanent (whole) policies. Term life provides affordable, lower-priced premiums to ensure a payout while whole/permanent has higher premiums with cash value in addition to a payout.
These are the four main types of business life insurance to put on your radar.
Key Person Life Insurance
Companies can buy Key Person insurance to protect themselves against the loss of a key employee. This type of insurance is available to startup small businesses as well as established Fortune 500 companies with high-level executives. If your business success rides heavily on the involvement of a particular employee, key person insurance can help you navigate the loss of their expertise and experience if they die. It would help you cover the expenses involved in finding and training a new employee, continue strategic initiatives the key employee was responsible for, and assure customers and creditors your business will remain reliable without that key employee.
Buy-Sell Agreement Life Insurance
Well-suited for smaller companies with two or three partners, this type of insurance includes a “Buy-Sell” agreement (administered through an attorney) funded by a life insurance policy. All partners pay the premium, and if a partner dies, the policy sees that a death benefit is paid to the remaining partners. Essentially, it enables the remaining partners to buy out the deceased partner’s stake in the business.
Business Continuation Life Insurance
This type of business life insurance would help provide your family with the funds they’ll need to keep your company going if the unthinkable happens to you. By getting a business continuation life insurance policy, you’ll ensure a cash injection into your business, so your heirs can continue paying expenses and operating the business you’ve worked so hard to build.
Loan Collateral Life Insurance
Some banks and other funding institutions require business owners to have life insurance policies before they’ll grant loans for equipment, real estate, and other big ticket business necessities. If you’re looking for funding for your company, you might have to secure this type of business life insurance. In a policy set up as loan collateral, the lender would become the primary beneficiary. If you die, the lender would receive the death benefit payout to go against the outstanding loan balance. If the death benefit amount is more than loan balance, your listed beneficiaries would receive the remaining payout amount.
As I mentioned earlier, all of the above business life insurance types are available with term policies, providing affordable premiums and coverage for a set number of years. Term life insurance serves small business owners well because not only do they provide peace of mind, but they also offer affordability and versatility. You can even convert term policies to permanent life insurance without proof of medical insurability for a period of time.
Before deciding on the type and amount of business life insurance you’ll need, do your homework and talk with an agent. An expert can help you find the right policy based on your needs and what your business can afford.
After all the blood, sweat, tears, money, time, and all else you’ve put into building your business, don’t you think it’s worth protecting?
P.S. Just for fun: Check out this CNN Money article about business life insurance policy recognized as the largest by Guinness World Records. I’m rather confident your small business can find adequate protection with a far lesser benefit amount and a much lower premium!