Life insurance Policies for small business owners are very important. When a person dies unexpectedly, it impacts not just the business but also his/her family members. The impact is even more if it’s the boss or any other key member of the company.
In case of a sudden death of the owner of the company, the business is going to turn upside. It takes time to settle down and get things back on track.
On the other hand, in case of the passing away of a key member, then it would certainly take more time to hire and train a new manager in the same position. Let’s consider a scenario where you had refused to take a short life insurance or long term care insurance.
Life Insurance Scenario
You own and run a partnership firm that manufactures and sells retail goods. You’ve been running the company for over a decade and have about 40+ staff doing the work for you.
Over the years, you have developed a good reputation and a growing client base in the local area. You share a common vision with your partner and look forward to increasing your sales and profits drastically over the coming months. Things are going to well; life is good.
One bad morning, you get a call and find that your business partner has passed away in a brutal road accident. You are disappointed and take some time to recover from the grief and put your business back on track.
A few weeks later, you get an unexpected call. Your business partner’s spouse tells you about the huge debt her husband had racked up in a commercial property deal that ended in loss. As a 50% shareholder and investor in your company, she has all the rights to demand you to sell the business and settle her demands. You have only two options – either sell that company you’ve built for over a decade or borrow money from a financial institution and settle her dues.
Either way, it can be extremely stressful. You start regretting your decision of not listening to the insurance agent. A buy-sell agreement life insurance policy would have saved you at such a stressful time.
Now is your best chance to get buy-sell agreement life to avoid any such uncertainties in the future.
But wait, before you start exploring the best life insurance companies in your city, make sure to know the different types of life insurance policies for small businesses and how they work.
3 Types of Business Life Insurance
1. Individual Life Insurance
The benefits of Individual Life insurance are offered for the business owner’s family. This type of insurance is more suited for business owners who have the habit of taking loan against their other properties and assets for the running of the company.
In common scenarios, when the owner dies, the family members usually sell the company to settle the loan amount. In most cases, the members settle for a price that is lower than its actual cost because the situation demands them to act quickly.
An individual life insurance can protect the business owner’s family by providing a suitable compensatory amount as specified in the policy.
2. Buy-Sell Agreements
This type of insurance comes in handy when the family members of the deceased business owner have no knowledge or interest to run the business. They might want to sell it.
The insurance company itself purchases the business for a predetermined sum of money as signed in the agreement.
3. Key Person Insurance
When a business owner or a management level person passes away, it’s quite common for a company to suffer loss in the form of upcoming projects, deals, or existing clients that would boost its revenue and profits.
People who took the services of a business because they knew the owner so well are usually the first to back out from the deal. There is also additional cost to the company with regards to hiring and training a new candidate in place of a deceased manager. All these result in a big revenue loss to the company.
This is where Key person insurance can help. It offers cash to the business after the death of its owner or manager and thereby helps bridge the gap between the loss and recovery. A person’s loss is a loss but getting extra cash during such stressful period can save the company from running into serious losses.
The bottom line
Most small business owners think life insurance is an extra burden. But they realize its value only after an unexpected death of the company’s owner or manager. Protecting your business and family with life insurance is all about acting fast.
Make sure to talk to a renowned insurance broker in your area and take steps to protect your small business from uncertainties before its too late.
Good luck and be safe!
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Author Bio: Juliet is a writer at Rootfin, a site that helps people compare life insurance plans from top rated companies and choose the right coverage under the guidance of a professional agent.