So, you’ve opened a new business. You’re probably overwhelmed with everything you need to do, and all the new things to learn to manage your small business. It’s so exciting to start your new venture that you may not have thought of things like business continuity.
We know—it’s a downer to think about something awful happening to you. Nobody likes talking about death or disaster, but as a business owner, you need to bear in mind that you’re not on your own anymore. Now your family and your employees are depending on you. Your unexpected death could bring disaster not only to your family, but also to the business you’ve been working so hard to launch and grow.
Life Insurance and Your Small Business
You’ve probably already gotten business insurance for your new venture, and you might even already have life insurance. But your family and employees might not be financially able to take the company over if you die. It’s possible they may not easily be able to sell the business, either—or, they may be forced to sell for much less than the business is worth. This could leave your people without income, or worse.
If you, your employees, or your family members have used their home as collateral for a loan for your small business, a sudden lack of income could be devastating. That’s where life insurance comes in. There are different policies to consider when it comes to protecting your business. Let’s look at some options.
Business Owner Life Insurance
As a small business owner, you might need multiple life insurance policies. A personal life insurance policy can help your family repay business debts and cover living expenses if you die, which would leave them some time to determine how to proceed without you. In this case, you’ll want to review how much insurance you have, and work with your insurance agent to determine how much you need.
For small businesses with multiple owners, consider combining life insurance policies for each partner with a buy-sell agreement. This means that all partners agree to buy out the surviving family’s share—which is paid by the decedent’s life insurance. The price can be predetermined or more commonly, be the market value of the business at the time of death. There are several types of buy-sell agreements, as well as policies that complement them. According to Forbes, almost three out of four business owners have no documented business continuity plan for senior roles. If your business is owned in part by someone other than yourself, this is another important subject to discuss with your insurance agent.
Key person insurance is another type of policy that pays out if a critically important employee dies. This type of policy is paid to the business owner(s). In a small business, the key person might be the owner or owners, the founders, or other people who are crucial to the business operation—in other words, if the business would fail without someone, they are a key person.
If people count on you, you need life insurance—no matter whether you are a solopreneur or have dozens of employees. Determining which policies you need will be unique to your business, your family, and your situation.
And, you will need to revisit your coverage periodically. Your insurance needs may change throughout your life—you may need different coverage as a single young person as you would if you were part of a family of five. Get professional advice before buying—your agent can help you identify exactly what you need for your situation.