By Jacob Sorensen
Licensed insurance agent
The discussion of life insurance can be a difficult conversation for anyone, but none the less it is a necessary conversation. When we think about the life insurance discussion it is most often associated to our personal situation within the household. There are plenty of reasons why people obtain life insurance, but the primary reasons are to pay off debt, maintain a current lifestyle, and protect the finical future of our loved ones. As we transition the conversation to business, I ask you. Do businesses need life insurance for owners and key people?
I assume most of you answered correctly but the answer is yes! Whether your business is a sole proprietorship, a partnership, or have a key person who plays a vital role in your business, life insurance should be a major consideration in your business plan. A properly structured life insurance policy can ensure the continued operations of the business in the event of an unexpected death. The list of people counting on you grows as you build a business; family members, business partners, and employees.
Let us looks at a few opportunities a life insurance policy provides for a business. If you are a sole proprietor, it is a strong likely hood you leveraged assets or took on personal debt to start your business. If you have a spouse, they not only depend on your income but depend on the success of the business to pay off debts. A personal life insurance policy can ensure in the event of your death, the debts can be repaid, and loss of income can be replaced. A term life insurance policy can be a good option for covering the death benefit need while keeping costs low for the duration of the need.
Having ownership in a business with one or multiple partners can be a wonderful experience but can absolutely be more complicated in the event of a death of an owner. A buy-sell agreement should be used when there is multiple interest in ownership. Each owner would have a life insurance policy issued and in the event of their death its proceeds would provide liquidity to purchase the deceased’s interest. Without a buy-sell agreement it is quite possible the remaining owners end up in business with someone not expected. A permanent life insurance policy might be the best option to last with the future of the business.
Every business has someone who is indispensable. These employees are called “key people” and without them the business could suffer a loss of revenue until a replacement is found. A life insurance policy is issued on a key person and owned by the business. A key person life insurance policy can ensure the business can sustain its costs if revenue decreases while trying to find and train a replacement. A term life insurance policy should be considered for the estimated time of the key persons remaining employment.
As businesses grow, they compete in the marketplace to hire the best candidates. Candidates often look beyond the salary and expect additional benefits. A permanent life insurance policy can be one of those additional benefits that the employee owns but is paid for by the business. A permanent life insurance policy not only provides the employee’s family financial protection, but it can help supplement the employee’s retirement income.
As you can see there are many possibilities as to why life insurance should be addressed in every business plan. An unexpected death is not only tragic, but it can create even more hardship and turmoil. Having a protection plan in place can reduce the impact on family members, business partners, and employees. This article was a brief overview of potential options that could apply to your business. Always consult with a licensed insurance agent to assess your needs, understand tax implications, and learn more about available products. American National has a suite of life insurance products to handle all your personal and business needs.
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