Small Business Life Insurance

Starting your own business, or living the life of a freelancer, can be an immensely challenging undertaking, especially if you walk away from a job with security and benefits to pursue the path less traveled.

But it seems the road less traveled is being walked more often nowadays. A Pew Research Center report found that self-employed Americans and the people working for them accounted for 30 percent of the nation's workforce or 44 million jobs in total. That’s almost a third of the nation’s workforce.

As a small business owner, there are many and varied things that occupy one’s attention daily — sales, reports, staff, deliveries, collections, vendors, etc. One thing that is not at the top of the list though, is life insurance.

But as we all know, nothing is certain but death and taxes. So, when a small business owner passes away, it can be the source of quite some turmoil and instability in the company. It raises many issues, including personal loss but also practical questions like the replacement of a key asset and leadership going forward.

A life insurance policy can provide operating capital during this trying time and can assist in getting the company through a period of difficulty. Additionally, it can provide the opportunity for the surviving partners (if there are any) to buy the late partner’s shares from his or her heirs.

Arrangements such as this are often set up in a Buy-Sell Agreement, a very important document in any business partnership. In a company that has multiple owners, you can combine life insurance policies in this document, and it would stipulate that on the death of a partner, the remaining partners can buy out the surviving family’s share at a previously agreed price. The life insurance would then pay the buyout.

 

Types of life insurance

There are two main types of life insurance: term and permanent.

With term insurance, the insurance company guarantees the payment of the death benefit, as long as the policy remains in force.

Permanent insurance, also sometimes referred to as whole life insurance, is designed to build internal cash value that can be accessed before the insured dies via policy loans. 

Policyholders can tap into the cash value that builds up inside a permanent insurance policy to meet a wide range of financial needs.

Every individual’s and family’s insurance situation is unique, so you should consult with an insurance professional for guidance on the best type of life insurance for your personal and your business needs.

Personal life insurance can help a family pay off any business debt and cover living expenses after a loved one’s passing. The family would then have time to decide what arrangements can be made with the business.

Key-person life insurance is a type that protects against the loss of a critically important employee. In the event of death, the insurance would pay the owner or owners of the business.

Small business owners may need several types of insurance policies. David Lerner Associates offers a variety of financial products and services designed to protect your family and business. 

 

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC