Small business owners aren’t exempted from unexpected yet inevitable future eventualities, like death. Their business, partners, employees, and loved ones could struggle if they pass away without warning.
This is why security of life insurance is recommended. It financially protects a company just as much as it’s about protecting the business owner’s loved ones. Not only that, but it also gives them peace of mind.
Besides financial protection and gratification, here are ways life insurance future-proofs a small business and benefits everything around it.
Protect Loved Ones
The most apparent benefit of life insurance is the financial security it gives to the loved ones of a business owner who passes on. It replaces income and ensures the family isn’t left with substantial debts, keeping their same standard of living even after an owner’s death.
Keep Business Operations Running
Business owners can also specify a portion of the personal life insurance benefits their family receives to be allocated to their company’s expenses. These funds can prevent business costs from mounting and the business itself from collapsing after an owner’s death.
Maintain Cash Flow
Even if the business owners are still alive, they can use life insurance to keep their company’s finances afloat in good times and bad. They can use their policy’s accumulated cash as extra funds to tide the business over and avoid financial penalties.
Fund Partnership Agreements
Life insurance can also be used to fund partnership agreements. Specifically, this is called a “buy-sell life insurance agreement.” It’s designed to financially protect a company after a co-owner or business partner’s death.
In this agreement, if a co-owner or business partner becomes incapacitated or dies, the surviving co-owner or business partner has the right to buy out their share of the business. The death benefit is then used to fund this buy-sell agreement.
Prepare for Disasters
Natural disasters are often covered by business insurance, but there can be gaps. One great example of this is the COVID-19 pandemic. It wasn’t covered until recently, leaving several business owners to scramble around 2020-2021. Many even closed or lost their businesses.
In these cases, having other sources of funds to cover disaster costs is necessary. This is where cash value from a life policy can be utilized again. It can be an extra pool of funds to replenish a company’s lost revenue or cover needed repairs.
Fund Business Expansion Plans
Accrued cash value from life insurance can also be leveraged to help a company expand its business. Unlike other lending financing options, it can be flexibly used to increase inventory, hire more employees, move to a larger location, or whatever expansion a company plans to do.
Equalize An Estate
Life insurance can be used to ensure that everyone in the family gets an equal inheritance (either money or asset value) after a business owner’s death. Equalizing an estate is particularly helpful for family-run businesses, regardless of its size.
A business owner can purchase additional life insurance policies worth the same amount if multiple heirs exist. This will ensure estate equalization and generate more wealth for the next generations by doubling or tripling their estate value after their death.
How to Get Life Insurance for Small Businesses?
Life insurance can be availed directly through any insurance provider’s websites or other online platforms that solicit insurance. Some independent brokers can also shop around with multiple companies to help you find coverage suitable for your business and finances.
To get started, decide how much coverage you need. Consider how much compensation or funds your business needs in the event of revenue loss, key personnel loss, and debt. Then, shop around and compare life insurance quotes to find the competitive rates.
How Much Is Life Insurance for Small Businesses?
Coverage is one of the primary factors that determine insurance rates. That’s why, as mentioned, it’s among the first things to consider when getting life insurance. Most of the time, whole-life policies that guarantee payouts are costlier than term-life options.
Another factor is the nature of business. In almost every instance, the riskier a business, the more expensive the life insurance. Examples of these high-risk works are those in the construction, forestry, and other industries where accidents and life-threatening injuries are common.
Lastly, the business owner’s age and health matters as well. Premiums are much higher if the insured is old and has a medical history. For most insurance providers, these people are high-risk because they’re likely to sustain injuries or pass on earlier, qualifying them for living benefits.
Final Thoughts
Life insurance isn’t only a safety net for you and your family and can protect your small business. There are several kinds of it, so be sure to opt for the policy that helps your company run smoothly and accelerate its growth. If unsure, it’s always highly recommended to work with an expert.