Why Small Business Owners Need Insurance
For small business owners, taking care of everything at all times can be stressful. Why deal with anxiety over bills and overhead? If you are tired of thinking about the what-ifs and what could happen if you passed on, you should look at the benefits of a life insurance policy. These policies are designed to protect your business and your family.
The average amount for a loan from SBA is about $107,000 in the US. What were to happen if this debt were to fall on your family?
Life comes with its usual surprises, but have you ever thought about what your family would do if they had to survive without you? What would happen to your business and employees? If you have taken out any loans to get your business started, you may be in more deeply than you think. Those loans may lead to the loss of your home if you are no longer able to support your family.
Some of the main reasons that business owners get insurance include:
Income Replacement
If you are the sole earner in your family, then your loved ones will be completely devastated without your income. You should look at your overall debt, future college fund, spouse’s retirement and any dependents that you have to understand what you’ll need to pay into a policy. Typically, it’s 10 to 12 times the amount of your annual salary.
Collateral Coverage
Have you taken out a starter loan for your small business? This responsibility could fall onto your family, and if it’s a large amount of debt, your family may have to sell your home and personal assets to pay it off. Business owners should think of all the costs and debts associated with their business when selecting a premium and death benefit for their policies.
VIP Employees
Is there a person who brings together an entire department? Do they handle all of the operations? If you would be lost without this person, it could seriously hurt your business. Besides training other employees to offset this risk, you may also want to invest in key person insurance.
How to Determine the Type of Insurance
In other cases, your family may not be equipped to run the business in the event of your death. Your business may suffer, and your family could be forced to sell at a reduced rate just to get out of the associated costs and loans.
What if you have business partners? If your family is unable to take over your role, your partners may be forced to sell as well. Finally, if your business relies on key employees whose deaths would mean that your business falters or operations have to stop, you could lose even more business.
While these scenarios are unpleasant to think about, it’s even worse to think about the what-ifs without any protection to comfort you. There are ways to ensure that these things don’t happen to your family, and you can also set up a way to protect your business in case of disaster.
Types of Business Owners Insurance Policies to Look For
In each of the examples above, a policy could have provided a safety net. However, there are different policies that work for each situation.
With a personal life insurance policy, you can protect your family and pay off any debts associated with your business. These policies also cover your living expenses after your death, and your family would have time to cut through the red tape and help the business. The best policy to go with would be a whole life policy or term life policy in this case.
If you have a business with multiple partners, then you can combine all policies for each partner in a buy-sell agreement. This policy states that if any partner should die, then the remaining partners are able to buy out the surviving family’s share at a previously agreed-upon cost. The insurance policy then pays for the buyout. That’s pretty easy, huh?
Finally, if you have an employee who is crucial to your business, then you may want to look at key person life insurance that protects against their death. The insurance company would pay the owners of the business in the event of the employee’s death.
You may need several policies to fully protect your business and family, depending on your cost, debt and overall income.
When looking at different policies, here are some different things to consider:
Term Life Policies
These policies protect you for a certain amount of time that you specify. In general, they last between 10 and 50 years. When you die, your death benefit is given to the beneficiaries specified in your policy.
Whole Life Policies
These policies cover your entire life as long as you pay your premiums each month. In addition, these policies typically have a cash value account. You can consider these more like investments, as the more you pay into them, the more they grow from interest.
How to Buy Insurance as a Business Owner
Most business owners don’t realize that it’s easy to get insurance policies. It’s just like buying a personal life policy in most cases. Once you determine what coverage you need, then you should compare different types of policies and submit your application for the one that suits your needs best.
You may want to invest in a policy that protects your family first, then follow up with a policy to protect your business. Most insurance underwriters will work with you to create custom policies to cover everything you need and get the premium that works best with your budget.
Since you put a lot of time and effort into building your business, you should look for a way to support it if there are ever any surprises. If you don’t have insurance policy right now, you’re at risk of losing everything in the future.
Is Your Business Ready and Able to Handle Surprises?
Most business owners are always thinking about new products and the bottom line. However, none of this exists without you. To protect your business, you can simply look into a policy that covers the full cost and debts of your company.
If something were to happen, the insurance company takes care of everything as specified in the policy. You don’t have to worry about any money being owed by your family or your business. It’s the best way to ensure that your business does not go under after you pass on.
Have you thought about getting a policy to protect your business? You should check what the policy covers and look at your premiums before stepping into any agreement. Take a second to contact us, and we’ll help you through the process.
