Business Insurance

As a family business owner, you have to think about protecting both loved ones and an enterprise. You may have a family at home who counts on you, children who will carry the business forward and employees who depend on you for their livelihoods. That’s a lot to safeguard, which is why buying life insurance is so important.

It can replace your income
If anyone depends on your income, then you need life insurance, whether you work for someone else or run your own business. If you die prematurely, your family can use the life insurance proceeds for everything from day-to-day household expenses to funding the kids’ college educations.


It can cover your personal and business debts
If you’re like many small-business owners, you may have secured a business loan with personal assets, such as your home. In that case, you need life insurance to cover the debt and protect those assets for your loved ones.


Don’t assume your family will be able to liquidate the business to pay off lenders. When forced to sell quickly, your heirs might have to unload the business at a discount, or the business might not be worth that much without you at the helm.


The lender may require you to buy life insurance as a condition of the loan - but don’t name the bank as the beneficiary. Instead, request a “collateral assignment” from the insurer after the loan is approved. Under a collateral assignment, the insurer will use the life insurance proceeds to pay off the loan and give the remainder to the policy’s beneficiary, such as your spouse.


It can protect your heirs from estate taxes
Even if you’re cash-poor, your business assets could be enough to put you over the federal estate tax limit. A looming tax bill could force your heirs to sell the business in a hurry. Family had to sell off land to pay estate taxes, others in the area knew they were desperate to sell and made lowball offers.
Life insurance proceeds can help your heirs pay the estate taxes. They can keep the business intact or take their time in selling it to get a decent price.


It can help you equalize your inheritance
Life insurance helps business owners treat their adult children fairly when not all of them are part of the business. Suppose your daughter helps you run the business, but your son has nothing to do with it. You plan to leave the business to your daughter, and you want to leave an inheritance of equal value to your son. A life insurance policy can help you do that.


It can help fund a buy-sell agreement
A buy-sell agreement is a legally binding contract between business co-owners. The agreement spells out what happens to the ownership interests of a business partner who dies, becomes disabled or leaves the business.


Suppose, for instance, you own a catering business with your sister. You agree that if one of you leaves the business for whatever reason, the other will buy out her portion according to the stipulated terms. If she dies, you would buy out her portion from her heirs. Without a buy-sell agreement, you could wind up in business with a brother-in-law who knows nothing about catering.


Life insurance is a simple way to provide money for a buyout. The owners or the business purchase policies insuring each partner. If one dies, the life insurance proceeds are used to buy out that person’s share of the business.


It can protect the business against the death of a key person
Imagine if you or a hard-to-replace employee suddenly died. No matter how determined the remaining employees were to keep things going, the business would probably lose revenue while everyone scrambled to regroup. Life insurance can provide “some working capital to get them through.  For example - a small construction business that bought life insurance on its crane operator. If the crane operator dies, the business can use the life insurance money to offset lost revenue while it recruits and trains a replacement for this hard-to-fill position.


It can help you retain talent
You can use permanent life insurance to provide additional compensation to key employees, enticing them to stick around. Typically a business will buy a permanent life insurance for the key employee. Although the business pays the premiums, the employee owns the policy and later can use the cash value to supplement retirement income. In a “split-dollar” life insurance arrangement, the business and the employee share the costs, death benefit and cash value of the policy.