Life Insurance and Your Small Business
If you own a small business, your life insurance considerations may be very different from those of a non-business owner.
Many questions may arise in the course of considering life insurance for yourself: how will my survivors continue to operate my company, or will they be forced to sell?
Will my partners work well with my survivors? What happens if a key employee dies? The answers to these questions determine what type of life insurance you should purchase and the amount you should buy.
If you own an interest in a small business, you will have to decide if your survivors will want to continue to operate the business, or if they will want to sell your share. If your survivors would want to continue running your business, then you should insure your life for the amount they will need to buy out the other partners or honor any “buy-sell” agreements in place.
For example, suppose you and another individual own a plumbing company, and you have an agreement that upon the death of either of you, the other will buy out the remaining interest in the company.
In this case, you will need life insurance on your partner sufficient to pay for your portion of the business, or life insurance on yourself so that your heirs can pay for your portion of the company if they wish to keep it. If you have a son who is an employee, insuring your life in favor of this young man can allow him to buy your interest in the company so that he remains employed.
Of course, your heirs may not want to purchase your interest in the company. In this case, life insurance would provide an instant estate for your family to mitigate the loss of your income.
Another scenario is when you have a key employee without whom your business would suffer. You may choose to insure the life of this employee so that, in the event of an untimely death, you can recoup the losses which will inevitably result.
Some business plans are structured so that the employees can buy the business after the death of the owner. This helps to protect the owner’s investment, as well as the employees.
“Key person” insurance often comes into play in this instance, with the key person being the business owner himself. Life insurance proceeds can be designated to help the employees purchase the company and keep the business running smoothly.
State Farm is one company which works closely with business owners to craft the right type of life insurance policies for the business’s specific needs. State Farm agents can review your business structure and, working with your attorney or agent, help you decide on the right type and amount of life insurance to protect your business.
Another consideration many small business owners have is offering life insurance to employees. This is a great way to gain employee loyalty and offer fringe benefits which will protect the families of your workers.
However, many small business owners may feel it is too expensive to offer life insurance to their employees. This need not be the case; many companies will work with business owners to provide good group coverage rates, even if the business is very small.
In order to find group life insurance policies for businesses with less than 1,000 employees, the best approach is to work with an independent insurance agent who has access to several insurance companies and can give you a number of quotes for your business.
Independent agents are not tied to any one company, but rather handle the business of several insurers, giving you the best chance of finding affordable group coverage for your employees.
