Can Life Insurance Protect Your Small Business?
As the owner of a small business, you might have wondered what would happen to your business in your absence. Would your family manage to cope up with the loss of income? What would happen to your employees and their families? After all, their livelihood is dependent on you.
And then, if your business has debts backed by assets, what would happen to them when you are gone?
You may or may not know the answers, but before we try to give you a solution in this post, let us take a quick look at some of the common myths associated with these questions and prepare a reality check.
My spouse can run my business after my death
Remember, it may not always be the case.
Here’s the reality check: In many cases, the spouse neither wants to nor is capable of running the business. Most small businesses rely a lot on the negotiation, marketing or technical skills of the owner. If you take them away, the business can fail!
The business can always be sold to a competitor
Possibly yes but then again, it may not come to the advantage of your surviving family members.
The competitor may very well take customers away from your business and purchase all business assets at an incredibly low price (if proper negotiation and valuation are not done on paper).
The death of the owner or that of the owner’s spouse will have no financial impact on the business
This is certainly a myth with zero substance in it.
Each small business owner typically makes a very specific and important contribution to the business (either through finances or effort) or has a particular skill that is very hard to replace.
The business can be run by an important employee in the organization
This is a good possibility. A key employee may run the business well in your absence.
But then, if the employee really runs the business, he or she can demand a salary that matches the additional demands of the job. The funds needed to keep everything running may be more than the business can afford.
And this is where life insurance comes in. Life insurance can protect your small business in three important ways:
- Key person insurance: This is a life insurance plan taken by the company on the head of the most important employee in the organization and is payable to the company. When a key person dies, this plan can help to offset lost sales or revenue, and cover the costs of finding and training a replacement.
- A buy-sell agreement funded by life insurance: This provides a guarantee that the deceased owner’s company is purchased at a pre-agreed price, thus ensuring that surviving family members are fairly and promptly compensated for the sale of their business.
- Individual life insurance: This is your individual life insurance policy that can provide your family with additional funds to pay off personal or business debts, cover current living expenses, and fund future requirements such as education for your kids or retirement.
Safeguard your small business today. Know more about life insurance plans that can help to protect your small business today, tomorrow, and even when you are gone. Talk to our advisors today!