Additionally, life insurance can provide financial assistance to its business partners and employees.
Continue reading to find out why business owners need life insurance.
Why do business owners need life insurance?
When you run your own business, the number of people who depend on you financially is greater. Not only do you have to think about your family and the people close to you, but your business partners and employees as well.
Life insurance can help you secure your family’s and your business’s future in the event of your death. It will help your family live comfortably after you are gone, and ensure your business continues to thrive in your absence.
Is personal life insurance for business owners a good idea?
There are two types of personal life insurance — term life and permanent life. Both help your loved ones live comfortably after you are no longer there to provide for them.
Certain companies offer employees benefits like retirement accounts or employer-sponsored and group life insurance. Business owners do not have access to these benefits and, as such, may require a personal life insurance policy even more than others.
Business owners require personal life insurance for the same reasons other people do — debt protection and income replacement. In fact, their needs in these two departments are usually much greater than those of the average applicant.
Some of the main reasons why a business owner should buy a personal life insurance policy are:
Your income is your biggest financial asset. Your loved ones may not be able to live comfortably if your income were to suddenly stop. Life insurance provides income replacement and helps your family stay afloat after you are gone. Your family can use the proceeds from the policy to take care of household bills, cover education costs, and pay off debt.
To figure out the amount of life insurance you need, first, determine your long-term financial obligations. Next, subtract your assets from that figure. The remainder is the gap that you would want your life insurance policy to fill.
Your loans do not simply disappear after your death. If you have taken out a business loan for which you used a personal asset as collateral, your family may have to dip into their savings to pay off the lender. If you used your house as collateral, they may even risk losing it after you are gone.
When figuring out how much life insurance you need, also factor in all business loans that can affect your loved ones after you are gone. If you want your life insurance plan to provide comprehensive coverage to your family, make sure it includes:
- Debt protection
- Income replacement
- Business loans that can impact your dependents
How to buy life insurance as a business owner?
The process of buying life insurance for business owners is the same as for non-business owners. Follow these steps:
- Find out how much insurance you need
- Get quotes from multiple insurance companies and compare them
- Pick the insurer that offers the best value
- Submit an insurance application and take a medical exam
- Make the first premium payment once approved
Business owners may benefit from buying multiple policies. Generally, business owners take out at least two policies. One life insurance policy to provide financial assistance to your family, the other to your business.
Life insurance for business owners FAQ
Why do small business owners need life insurance?
Business owners understand that their death may affect more than their families. It can also impact their company, business partners, and employees.
A life insurance policy helps you financially protect your family and your business.
What is the purpose of key person insurance?
Key person insurance covers the loss of a business partner or a key executive. The business purchases the insurance policy and becomes the owner and the beneficiary. The business can use the death benefit to cover financial losses occurring due to the partner or key executive’s death, or the cost of recruiting a replacement.
What is business life insurance used for?
The death benefit amount of life insurance for business owners in Canada may be used for:
- Covering the cost of hiring a replacement
- Compensating business losses resulting from the insured’s death
- Distributing severance pay if the business closes
- Buying and redistributing the deceased’s interest in the business
Who is a key employee for life insurance?
While all employees are important for a business, some are indispensable. A key-person is often a business owner, a CEO, or a top executive. But it can also be any other employee who will be extremely difficult and expensive to replace.
As a business owner, you not only have to think about your family, but also your business. Life insurance can help you ensure that both will stay afloat in your absence. At Dundas Life, we will assess your needs and recommend plans suitable to your unique situation. We can help you find the right life insurance policy at the right price.