Protecting your family
There are several reasons that you, as the owner of a small and growing business should purchase a life insurance policy. The first, is to protect your family and others who depend on your financially. An unexpected death can be incredibly expensive for those you leave behind. So it’s critical to ensure that you have a financial plan in place to account both for your lost income, and your other financial contributions to your household, including mortgage payments, credit cards, childcare etc. Unless you have substantive savings to cover your lost income, or to clear your debt, an insurance policy should be a critical part of that financial plan.
Protecting your business
As a business owner, you have others, beyond your family or loved ones, depending on you financially. This includes your business partners, as well as your employees. If you are heavily involved in the daily management, and growth of your company, your unexpected loss could have severe financial implications on your business, and those who have hustled with you to grow it.
A key person life insurance policy can be purchased to protect your business. This policy can be corporately owned, with the business paying the premiums. It will provide your business with a tax-free death benefit that can be used to recruit and train your replacement, to cover any overhead expenses incurred until the company gets back on it’s feet and to make up for any lost revenue.
In many cases, a life insurance policy is mandatory in buy-sell agreements. These agreements are common when there is more than one business partner, or founder. They are legally binding contracts that outline how a partner’s share of the business will be allocated in case a partner dies prematurely. In most cases, these agreements also stipulate the shares are to be sold to the remaining partner, or partners. A life insurance policy can be used to fund the purchase of these shares.
As a business owner, you might want to consider purchasing two separate life insurance policies—one that is personally owned with the death benefit going to your family or other dependents, and one that is corporately owned, with your business being the recipient of this benefit. Doing so will ensure that both your loved ones, and your hustle, are effectively protected.