Why this is a necessity for Successful Business Owners
No one knows when their time will come, but if you run a company, having life insurance for business owners is a must. Here’s why. Life insurance for business owners is about financially protecting your company just as much as it’s about protecting your loved ones. Here are some ways you can use life insurance as a business owner.
To keep your business running - Business owner life insurance is also a great way to keep your company afloat in good times and bad. It could be used to pay off your business debts, supplement cash flow and cover expenses needed to find your replacement if you died.
Likewise, if your business owner life insurance policy has a cash value component, you could tap into those funds to fuel tax-free business growth—even while you’re still alive.
To fund partnership agreements - If you have business partners, you most likely have a partnership agreement in place. This agreement typically stipulates that if one partner dies or becomes incapacitated, the surviving partners have the right to buy out their share of the business. Life insurance can help fund this buyout.
To equalize an estate - If you own a family business, you could also use life insurance to make sure everyone gets an equal inheritance.
For instance, say you have two kids. One works for the family business, while the other one doesn’t. Insurance can assist in estate planning to allow the child in the business to inherit the corporation’s shares while the other child receives an insurance payout, In the end, everything’s equal.
To protect your family -
What would happen to your family’s finances if you were to die unexpectedly? They could be left with substantial debts, a lack of income and potentially no way to move forward. Life insurance can replace your income so your loved ones can maintain the same standard of living.
Two Main Life Insurance Strategies for Business Owners:
Key Employee | Buy-Sell Agreement
What is Key Employee Insurance?
Key man life insurance, also known as key person life insurance, protects your business if you lose an owner or employee who’s critical to the company’s success. An owner or key person fills various roles that are vital to a business’s survival—from maintaining assets to fulfilling debt obligations and operations roles—and the sudden loss of such an individual can throw a business into a tailspin very quickly, Key person life insurance focuses on maintaining the business’s needs until it can get back on its feet by covering outstanding debts and share buybacks, covering the cost of hiring and training a new employee, and even paying out severance obligations in case the business needs to close or lay off workers.
What is Buy-Sell Agreement Insurance?
A buy-sell agreement is especially important if you have business partners.
A buy-sell agreement is a legally binding contract between business owners that dictates what will happen to the business if one of the owners dies, becomes disabled, or wants to sell their interest in the business.
There are 2 main types of agreements:
Cross-purchase buy-sell agreement is where the business owners each buy a life insurance policy on the other owners. The death benefit is paid to the surviving owners, who then use the money to buy out the deceased owner’s interest.
Entity purchase buy-sell agreement Is utilized when the business itself buys a life insurance policy on each of the owners. The death benefit is paid to the business, which then uses the money to buy out the deceased owner’s interest.
How much coverage your business needs?
Consider factors such as how much money your business would need to compensate for the loss of key personnel, the replacement of lost revenue and paying off any debts or loans. Ultimately, the goal of business life insurance is to make sure your business (and family) can continue to run smoothly without you. A licensed professional will help with a no cost analysis to ensure adequate coverage is in place for your business. Contact Legacy Group.
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