Small businesses are making a name for themselves in our economies and communities, with the U.S. Census Bureau reporting a record 5.5 million business applications in 2023.
as small business As owners work hard to complete paperwork, find clients and customers, and make money, they may be overlooking an important part of their business plan: life insurance.
Why small business owners need life insurance
Whether you're running a one-person show or managing a complex task with multiple employees. Life insurance “These can be valuable to your business plan,” said Allison Salka, senior vice president at LIMRA Research, a Connecticut-based insurance industry group.
For small business leaders, the sudden death of an owner or key team member puts the well-being of their family, employees, and customers at risk. They and their families may need to handle day-to-day operations and move the business forward while processing personal grief.
Life insurance can help you or your business avoid liquidation, pay inheritance taxes, provide income for your loved ones, and keep your business running for your customers. Certain types of coverage for business owners can also ensure that ownership and shares are transferred fairly to partners.
Types of life insurance for small and medium-sized businesses
understand the key Types of life insurance For small and medium-sized businesses, we can help you choose the best option for your needs.
individual life insurance
If you own a small business with no employees and are the breadwinner for your family, an individual life insurance plan such as: term life insurance It may be enough to meet your needs.
Individual life insurance plans are popular among small business owners because they serve both personal and business purposes, Salka says. You should purchase enough coverage to manage your personal debt and family living expenses, especially if your family depends solely on your business income.
key person life insurance
Also called keyman insurance, key person life insurance Protect your business even in the event of the death of a key employee or business member. Some small businesses rely on certain individuals with unique skills and knowledge, such as skilled developers, CEOs, and public relations personnel.
Having key person insurance gives you the cushion to maintain the value of your business even if you lose a key team member, Salka says. A key person life insurance policy can cover the cost of hiring and training a new employee or replace the loss of business income that employee would have generated.
sales contract
a sales contract Establish a clear transition of ownership in the event a partner dies, retires, or becomes disabled. This type of agreement provides a framework for co-owners or key employees to buy out the deceased owner's shares in the business.
Business partners may enter into life insurance policies with each other as part of a buy-sell agreement to secure financing to acquire a business.
group life insurance
Can be provided by both large and small companies group life insurance As a benefit to employees. Salka said these policies are cost-effective for employers and employees because the premiums paid by employers are sometimes tax-deductible as business expenses.
Group plans make insurance accessible to a wide range of people, regardless of pre-existing medical conditions. Additionally, you can attract and retain top talent by offering additional benefits such as group life insurance.
Buying life insurance as a small business owner
LIMRA's 2024 Insurance Barometer study found that nearly three in four U.S. adults (72%) overestimate the cost of life insurance. In fact, a healthy 40-year-old man can pay less than $350 a year for a 20-year individual term policy with a $500,000 death benefit, according to life insurance brokerage firm Quotacy. .
Follow these steps to insure yourself or your business.
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Determine the coverage you need. Consider both personal and business expenses to calculate how much your family or company will need to survive without you in the long term.
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Choose the type of life insurance you need. Depending on the size of your business and how you want your ownership to be handled after you pass away, you can choose between your own individual policy, a buy-sell agreement, a key person policy, or a combination of policies.
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Shop around and get a quote. Compare life insurance quotes from 3 to 5 companies online or over the phone. Working with an agent or broker can help you find coverage and negotiate terms that best suit your needs.
it doesn't matter how much is life insurance Salka says understanding your business's coverage needs is an important first step in small business continuity planning, regardless of the coverage or type you choose. Preparing for your family, heirs, and company in advance gives everyone peace of mind and confidence in your long-term plans.
