• Home
  • About
  • Contact

The Phat Startup

The Ultimate Lifestyle Blog for Entrepreneurs

  • Blog
  • Blogger Lifestyle
  • Money & Finance
  • Motivation
  • Personal Growth

Blog

Life Insurance for Your Business and When You’ll Need it

Contrary to most thoughts, life insurance is not just for protecting families and other dependents. It can also protect your business. So, if you own or partly own a business, it is time you consider getting this policy to safeguard the future of your entity.

You shouldn’t just buy the coverage for your family and forget the source of your livelihood, the business. In the end, protecting the business means protecting your family financially and so they wouldn’t have to go through a hard economic time if you die.

But, when exactly do you need life insurance for your business? And what key benefits does the coverage bring? We provide answers to these questions below.

Common Situations You Need Life Insurance for Your Business – The Advantages that Come with it

Life insurance comes handy for your business in the following scenarios:

1. SBA Loans Coverage

Small business administration (SBA) loans are a common thing when running a small business. But like any other debts, SBA loans need paying. If you die, the payment obligation falls on your family. You surely wouldn’t want them to struggle to pay such a loan. Would you?

Life insurance comes to the rescue of your family in such a time. They can use the payout to pay off your SBA loan and any other business-related debt that you might have left behind. The idea is to protect your family from losing their home or any other valuable asset.

According to Ryan of Over50LifeInsure, SBA Loans usually will require you get a policy in place and has to be before the deadline.

2. Key Person Coverage

In a company, some employees (the owner included) are considered integral in the operations of the business. They form an executive team that makes crucial corporate decisions. Such individuals qualify for a specific business-owned coverage called key person insurance.

The coverage enables the business to continue remaining operational even after the death of the owner or any other key employee. In this case, it is the company that pays the premiums and not the business owner, and in return, the death benefits are paid to the company to cushion it financially.

The payout caters for any losses related to your death and the expenses incurred in searching for your replacement. So, if it is a family business, the financial benefits stay within the family.

3. Group Coverage

Employees can also take advantage of business life insurance to be eligible for compensation when the business owner dies. In this case, they don’t sign up as policyholders but subscribers. We refer to the coverage as group term life insurance, and it is vital in retaining employees who are afraid of not getting their salary and bonuses when the owner of the business passes away. With such a policy, you can hope to retain some of the best employees.

4. Buy-Sell Agreement

Buy-Sell Agreements are necessary for partnership businesses. They are a part of a business’ succession plan, which dictates what happens to the shares of a partner when they die. It is more of a prenup but in an entrepreneurial sense. The agreement declares the terms that the remaining partner or partners need to comply with to formally buy the business rights of the late partner.

But where does life insurance come into the picture? Well, life insurance provides the remaining partner with the funds they need to buy the dead’s shares. A special deed called a cross-purchase agreement is customarily signed to allow each partner to take life insurance for another. If one dies, the remaining owner receives the policy’s death benefits.

And, how does the deceased family benefits? The insurance payout eventually ends in the hand of the dead family or any other listed beneficiaries. They may not have rights over the business after your death, but they may get enough money to start one.

As an alternative to the cross-purchase agreement, co-owners of a business can sign up for an entity purchase plan. It allows the company not only to pay premiums for the partners but also to claim insurance payout if any partner dies. In such a case, the money goes back to the business to boost its survival.

Other Benefits of Life Insurance for Your Business

In addition to the above scenarios, life insurance benefits your business in the following ways:

1. Income Replacement

The life of your loved one continues when your stops. They’ll be having the same financial needs they had before your death, and this can be hard without life insurance or a source of income.

Assuming that you were the only breadwinner, your kids will need food and school fees. The family will also need to pay the mortgage, auto loan, and any other debt that you might have left behind. If you took life insurance for your business, the family would use the payout to cater for these expenses. At least, this will lessen the pain of losing you.

2. Estate Equalization

In family-owned businesses, not everyone is actively involved. Some give more of their time and energy than others. When the company president dies, there are often disputes concerning the splitting of the business assets and shares. Unfortunately, domestic disputes always disrupt the operations of a business.

Why don’t you save your family from such a mess by taking life insurance? The coverage allows those inactive family members to receive a financial payout from the insurance company that equals the shares that you leave for the active family members. So, it is a win-win for everyone.

3. Cash Infusion

Whole life insurance doesn’t just help t clear your SBA loan, but it can also help you procure one against your accumulated cash value. So, you can still reap the benefits of life insurance while you are still alive. You can use the payout to provide cash injection into the business.

Besides, life insurance can be used to build your creditworthiness. Since lenders always want to know if you have assets that you can fall back on if your business falters, they’ll pay attention to your life insurance policy. It demonstrates your financial stability, which makes you creditworthy.

Closing Thought

No doubt, every business needs life insurance. It benefits both the owner and the dependents. If you had concerns concerning the coverage, it is time you dispel it and start shopping for the best life insurance plan for your business. It pays in the long run.


« What Is an Automated Receptionist and How Can It Help My Business?
How Oil Can Actually Cure Breakouts »

About The Phat Startup

The Phat Startup was created by Mike McOwen to create a space where entrepreneur lifestyle could be focused on. We tend to live a different lifestyle than most. Entrepreneurs tend to be interested in maximizing their life, not only their profit.

Connect With Me

  • Email
  • RSS
  • Twitter
  • YouTube

Twitter Feed

Mike McOwenFollow

Mike McOwen
PhatStartupsMike McOwen@PhatStartups·
29 Dec 2017

Why is content marketing so important? Find out here: http://thephatstartup.com/money-finance/why-your-business-needs-a-content-marketing-strategy-in-2018/

Reply on Twitter 946751505146707968Retweet on Twitter 946751505146707968Like on Twitter 946751505146707968Twitter 946751505146707968
PhatStartupsMike McOwen@PhatStartups·
9 Oct 2017

http://yescincinnati.com/

Reply on Twitter 917521630162759681Retweet on Twitter 917521630162759681Like on Twitter 917521630162759681Twitter 917521630162759681
PhatStartupsMike McOwen@PhatStartups·
25 Sep 2017

Wow, interesting

Forbes@Forbes

Millennial men are more likely than women to default on student debt http://on.forbes.com/60148NudC

Reply on Twitter 912458136849698816Retweet on Twitter 912458136849698816Like on Twitter 9124581368496988162Twitter 912458136849698816
PhatStartupsMike McOwen@PhatStartups·
25 Sep 2017

I LOVE Toronto! Miss that place

GO Transit@GOtransit

Explore Toronto’s art scene with GO! Enjoy special late night service during Nuit Blanche on Sept 30. https://cards.twitter.com/cards/v2l8b/4ttwx

Reply on Twitter 912458028355670017Retweet on Twitter 912458028355670017Like on Twitter 912458028355670017Twitter 912458028355670017
Retweet on TwitterMike McOwen Retweeted
BuffaloSabresBuffalo Sabres@BuffaloSabres·
25 Sep 2017

Batter's up! ⚾️ Spending quality time with our friends at @MiracleLeagueWN.

4
Reply on Twitter 912457252057034754Retweet on Twitter 91245725205703475458Like on Twitter 912457252057034754331Twitter 912457252057034754
Load More...

Blog Ideas That Make Money

Setting Up A Food Processing Unit: What You Need To Plan

Ways to make your home and outdoor area look like it has been professionally designed

Understand Boudoir Photography Myths Before You Start Its Business!

Search

Copyright © 2021 · The Phat Startup

Copyright © 2021 · Divine Theme on Genesis Framework · WordPress · Log in