How Life Insurance Protects Small Business Owners

small business owners in the store

Starting and owning your own business is a huge accomplishment—one that often comes with big rewards and big responsibilities. As a new or seasoned owner, you probably have a strong understanding of the ongoing planning and promotional needs required for success. But have you taken the steps necessary to fully protect your bread, butter and the business you’ve worked so hard to create?

From hiring a skilled accountant to shielding your data from hard drive crashes and cyber-attacks, there’s plenty of security steps to consider. In this article we’ll look at how life insurance can protect your business and help it thrive. 

Three ways life insurance can protect your business
  1. Collateral for a business loan 
    If you took out a loan to launch your business, the lender will expect to be compensated even if you were to pass away before the loan was paid off in full. If you were the loan applicant and sole owner of your business, that debt would most likely become the responsibility of your spouse or other family members.

    By taking out an individual life insurance policy, large enough to cover the balance of your loan and provide financial support for your beneficiary, you’d be ensuring a reduced burden on your loved ones during what would already be a difficult and challenging time.
  2. Key person protection 
    With key person protection, a life insurance policy is taken out on one or more people that are considered key to the company’s success—either the owner(s) and/or essential employees.

    In this case, the business is designated as the beneficiary and would be provided funds in the event of a key person’s passing. 
  3. Funding a buy-sell agreement 
    A buy-sell agreement is a legal contract between parties that documents the buyout details of a shared business should an owner die or leave the company. In companies with multiple owners, a buy-sell agreement allows the surviving partner(s) to buy out the deceased owner’s share.  

    For example, let’s say a company has two owners who take out life insurance policies on one another. Their buy-sell agreement clearly states that each share of the company is $2M. By taking out policies with a death benefit of at least $2M, each owner has the assurance that they could purchase their co-owner’s share from their family or estate in the event of their passing. 
Additional (living) benefits of permanent life insurance

While term and permanent life insurance both offer business protection in the form of a death benefit, permanent life insurance policies also offer cash value—a savings component that grows on a tax deferred basis. This type of policy can protect a company not only in times of death but throughout the lives of a company’s owners and employees as well. 

The cash value component of a permanent life insurance policy can help your business thrive in more ways than one!  

Employee benefit and bonus

Some business owners are able to pay for their employees’ permanent life insurance premiums which provides them with not only coverage but also access to accumulated cash savings over time. An excellent employee retention tool! 

Business loans

The cash value of a permanent life insurance policy can be used as collateral for business loans. A valuable resource to help your business expand! 

Asset protection

In most states, the cash value of a permanent life insurance policy is protected from creditors, providing a safety net for business owners’ assets. 

Retirement planning

As a tax-advantaged investment tool, the cash value component can provide valuable retirement income, supplementing social security and replacing a traditional pension plan which not all business owners have access to. 

Life insurance for peace of mind (for your business and loved ones)

As a business owner, you know how much there is to protect and Quility is here to help. Reach out today and our nationwide network of licensed agents will assist you in shopping for, and securing, the perfect policy for you. Get started today!

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Brook van der Linde
Contributing Writer and Content Specialist
Brook van der Linde is a contributing writer and content specialist for Quility. She provides lifestyle articles and insurance information via Quility’s online magazine. Her industry and leadership-focused content can be accessed via LinkedIn.