Insurance for Business Partners

There are millions of family businesses in the United States and if you own one of them, then most likely you need some form of life insurance!

Many think life insurances only serve to insure the family, but life insurance serves a huge role in protecting businesses too. As a matter of fact, life insurance plays a huge role in legacy planning to ensure the continuation and future of your business. In summary, it’s important for you to have life insurance for your family and life insurance for your business.

Why business owners need personal life insurance

Individual life insurance policies are designed to take care of your family and your chosen beneficiaries if you predecease them. As a business owner, an individual life insurance policy may be even more important since you may not have the benefits that come with being an employee, like retirement accounts, employer-provided group life insurance, or disability insurance.

There’s two main reason that business owners need life insurance policies

Income replacement (huge)
If you’re the breadwinner for your family, then it is obvious that your loved ones will need financial support after you are gone. Creditors and lenders do not care if you die, it would be great if they did, but all they care about is getting their income stream. Life insurance will provide the financial support your family needs, efficiently and if done correctly, tax free! When you’re trying to decide how much life insurance you’ll need, there are many ways to calculate it. A quick rule of thumb is, at 5% earnings what amount of lump-sum death benefit would replace your income stream. For example, $1,000,000 earning 5%, would kick out $50,000 in income. Another way is to consider all the expenses and how much would be needed to cover them.
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The role of life insurance in buy-sell agreements

Buy-sell agreements are a must-have when you own a business with someone. A buy-sell agreement is a part of a succession plan that says what happens to an owner’s share of a business when he or she is no longer around. The events that cause the buy sell to go into motion and insurance policies to kick out, are called ‘triggering events. In many ways it is like have a prenup for a business…remember a business is an entity like a person or family member but can live forever. The mortality or immortality of your business depends on how good your succession plan is! setting the price and terms of the remaining partners buying the deceased partner’s share.

Collateral coverage

Many business owners take out loans to grow their businesses, and sometimes they must use their personal assets, like a home, as collateral. If you have funded much of your business with loans, after you die, collateral calls on the loans could happen.

The last thing you want to do is have your business loans force your loved ones to liquidate properties and valuables to cover them.

If you secure the proper amount and type of life insurance prior to your death, you can ensure your family is protected!

Why business owners need business life insurance

When you own a business, your family isn’t the only group of people depending on you. Your business partners and employees also depend on you and life insurance can ensure that if you die, their jobs and livelihoods do not die with you!

Through funding buy-sell agreements with life insurance, you can protect your business when you aren’t there.

Key person insurance

Key person insurance is a specific type of company-owned life insurance designed to help keep a business afloat even if the owner or another integral or ‘key’ member of the team dies.

The company pays the insurance premiums and is a beneficiary (normally the sole beneficiary) of the life insurance policy. If the owner dies, the insurance company pays out the death benefit to the business, and the company can use that death benefit in many ways, stipulated in the buy-sell agreement. For example, it can pay the expense of looking for a replacement, cover business losses due to the key person’s death or if the company closes. The benefit can also be used to pay debts and severances.

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Insurance for Business Partners
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