As a small business owner, you’re probably responsible for strategizing growth, assisting customers and running several day-to-day operations. But what happens if you were no longer around to do all those things? Would your spouse or partner be able to successfully run the business? How would your loved ones cope up with the loss?
This is where life insurance inflation comes in. This policy is a vital tool to protect your family and business finances in the face of these uncertainties. It can help keep your business afloat and ensure its continuity in good and bad times.
Here are 5 ways life insurance can protect your growing business in the event of your death.
Providing your loved ones with financial support
In the unfortunate event that you pass away, your family and business could suffer financially without life insurance in place. Some forms of life plans help to replace the loss of your income if you pass away.
The lump-sum payout to your beneficiaries would enable them to keep the business running as well as pay for basic necessities like day-to-day expenses and monthly bills. Your loved ones could also use the death benefit to meet future goals like buying a home or paying tuition fees for your children.
Life insurance is the best way to continue supporting your loved ones financially even in your absence. With a decent policy, you can have peace of mind knowing that your loved ones won’t face any financial difficulties after you pass away.
Protecting your key employees
The success of most small businesses often depends on a single person with unique skills that are hard to replace. If that person dies or becomes incapacitated, the business could lose a great deal of its value.
If you want your business to continue running smoothly after the death of key people in your business, consider taking out key worker insurance.
Also known as key man or key person life insurance, this type of policy is purchased by the business on the life of its key employees. When a key person dies, the policy can help cover the cost of hiring and training a replacement.
It can also help cover outstanding debts, lost sales or pay out severance obligations if the business needs to lay off workers and close.
Securing a business loan
Nearly one-third of small businesses depend on loans to keep operations running smoothly during tough times. In most cases, qualifying for Small Business Administration (SBA) loans is easier when you have a permanent life insurance policy with a cash value component.
Certain banks and lenders accept life insurance as collateral when being considered for a loan. When you use your policy as collateral for a loan, you assign the lender to collect some or all of the policy’s cash value during the life of the loan.
If you pass away before paying back the loan in full, the policy pays off the remainder of the loan. The remaining death benefit is then passed on to your beneficiaries.
Funding a buy-sell agreement
Life insurance is the cornerstone of any company’s succession plan. If you have business partners, life insurance can be a vital tool to fund a buy-sell agreement.
A buy-sell agreement is a legal contract between business owners that determines what happens to a business if one of the owners passes away, becomes incapacitated, or decides to sell their share of the business.
Instead of your heirs assuming control of the business, they could sell your share of the business to the living business owners. In this way, the business operations could continue in your absence, and your surviving family members would be entitled to receive a lump sum or structure payout.
Buy-sell agreements can minimize conflict between the living partners and deceased partner’s heirs and allow for a smooth running of the business.
Providing business owners with unique tax benefits
Life insurance comes with several tax benefits. This extends to the cash value growth when the insured is still alive, as well as the death benefit upon the insured person’s passing.
Whole of life insurance, in particular, provides business owners with the opportunity to grow their wealth tax free. As far as taxes are concerned, even self-employed people like freelancers could benefit from whole life insurance.
Considering that self-employed workers are responsible for Social Security and other taxes, these types of tax benefits could help cover these expenses. Tax-free retirement income, tax-free growth of cash value and tax-free policy loans are examples of tax benefits business owners can get from whole life insurance.
Protect your business with life insurance
As a business owner, you have a lot on your plate. Protecting your business should be one of your top priorities, and one way to do that is with life insurance.
A life policy can help ensure that your business can continue to run even if you’re no longer there to lead it.
Be sure to consult a reputable agent about what kind of coverage might be right for your business, and get peace of mind knowing that you’ve taken steps to protect the future of your company.