Many small business owners are unaware of the life insurance options available to them. Businesses need protection from financial risk, and life insurance can help provide that. A life insurance policy will pay out a sum of money when an insured person dies, even if the death is due to suicide or an accident. If you own a small business, it’s vital that you have sufficient coverage in place so your family doesn’t suffer financially in your absence. We’ll go over some reasons why life insurance for small business owners is so important!
Why should business owners get life insurance?
There are several reasons business owners should get life insurance. It is a financial safety net for business owners, their families, and employees. If the owner dies before retirement age they are unlikely to be able to afford living expenses on their own which can become very burdensome as an expense that doesn’t have income coming in. Family members can also feel the burden if there is not enough income coming in to cover living expenses.
Life insurance can be used as an emergency fund for business owners and employees so that there is enough cash available if something unexpected occurs. Employees may not be paid for this time if there is a lack of funds, or they may be paid less than their usual wage. Life insurance can also protect the business itself, as it can pay off any loans that are taken out.
Life insurance can be used for retirement funds as well, which is helpful for small business owners who may not have the best job security. This will enable them to earn money even if they are no longer able to work or their business has closed down due to a lack of profits.
Types of life insurance
There are a few different types of life insurance that can be beneficial for small business owners to consider:
- Term Life Insurance: This is life insurance that will last for a predetermined amount of time, usually the length of your mortgage or as long as you need it to be if you’re just starting out with debt.
- Whole Life Insurance: This type of life insurance offers lifelong protection in one package and doesn’t expire. However, it can be expensive and offers no cash value if you choose to cancel the policy at any point in your life.
- Universal Life Insurance: This type of insurance is more affordable than Whole Life Insurance, but will have a higher rate for protection that lasts until age 100. The benefit is that there’s an option to withdraw some of the cash value, and if you cancel at any time during your life there’s no penalty.
Each type has its own benefits and drawbacks, so it’s important to consult with an advisor who can determine the best option based on your needs.
How to get the right coverage and how much you’ll need
In order to figure out how much coverage you need, it’s important to consider the size of your business and how much income is coming in each year. You should make sure that your family will be able to maintain their current lifestyle if something happens to you or one of them
You will need to give insurance companies your age and the ages of anyone you are providing coverage for in order to get an estimate. This information is used by insurance companies to determine how much they should charge someone for life insurance, so it’s a good idea to have this number handy if you are shopping for life insurance.
When do I need to buy a life insurance policy?
A life insurance policy should be purchased in order to secure the future of one’s family and employees. For a small business, it may seem like an unnecessary expense since there is no “life” attached to the company (aside from that of the founder). However, if you own your own company–a sole proprietorship, partnership, or LLC–you are still personally liable for your company’s debts and claims. In order to protect against these risks, a life insurance policy should be purchased as soon as possible. The earlier you purchase the coverage, the more affordable it will likely be.
If you have a small business, it is important to consider life insurance. Insurance can be used as an inheritance for your family and provide some peace of mind that the death or illness of their main breadwinner will not leave them with financial hardship. There are many types of policies available but we recommend getting one tailored specifically to your needs so you know what benefits and risks come from each policy type. Contact a financial advisor today if you need help finding the right coverage for your situation! It may seem like a scary thing to think about now, but there could never be a better time than when everything seemed fine to prepare yourself for the future.