Why You Should Consider Life Insurance If You Own A Business

By: William Forbes

We have a quote printed on the wall of our office from financial guru, Suze Orman, which says, "If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance." This quote sums up pretty perfectly why you would need life insurance on a personal level. But, what about the people who depend on you in a business capacity?

Are you the owner of a business, or are you a partner in a business? If yes, then you have people who depend on you for the success of the business and their financial livelihood.

When a key member of a business passes, it can mean a few things for his/her family, as well as for the other employees: the sale of the business, the retention of the business, or liquidation of the business. The point here is to avoid liquidation, as it often results in a below market value.

There are several types of life insurance policies that can be beneficial for business use and to help prevent a company's liquidation upon the passing of an owner or key employee:

  1. Buy and Sell Policy. In a sole proprietorship, this policy is designed to allow competent associates of the deceased to purchase the business, using life insurance for funding. This means that if anything ever happened to you as the owner, your associates would have the proper funding needed to purchase the business and keep it running. Or, alternatively, your family would have the funds needed to keep the company running through a proper sale process.
     
  2. Cross Purchase Plan. In a partnership, each partner would purchase a buy and sell agreement on the others, naming himself as the beneficiary and the others as insureds. This would give each partner the proper funding to purchase a set share of the deceased partner's interest.
     
  3. Key Person. Most often used by corporations, here a business owner would take a life insurance policy out on a key employee (think CEO or other top executive). If the key employee ever died, the company would be the beneficiary of the policy, which would provide funding while a replacement was being trained.

These are just a few examples of using a life insurance policy to protect your business. For more information on these and other options, talk to our agency. Life insurance can provide needed security for more than just your immediate family members.