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As we get older, our lives change in many ways. Some of us find ourselves with more time on our hands and less money than before. We start to look at the world differently and think about what is important to us now.
One thing that often gets lost in the shuffle of planning for retirement, children’s education, and other financial obligations is life insurance. And yet this can be one of the most important decisions you make because it will protect your family from being left without a source of income should something happen to you.
In this blog post, I’m going to explore why small-business owners need life insurance and how they can go about getting it done right so they don’t leave their loved ones with a mess when they are gone!
Life Insurance For Business Owners
When you start out as a business owner you must have a vision. For instance, when you are thinking about how your business will be successful you probably have the end result in mind.
You think about hiring employees or subcontractors, how much money will you invest. In addition, you need to think about liability insurance, possibly bringing on business partners, etc.
When you put your vision to action it’s important to always keep in mind, the most important part of the business is, well YOU!!
If you are successful and your company takes off, you will have many responsibilities. In most cases, your company’s employees are your second family. Just like your immediate family, they all depend on you.
What happens if you die, or if one of your partners dies? What about a very valuable employee?
How will your company survive? We will discuss the many scenarios in this article.
Life Insurance Strategies For Business Owners
Again, when you have a business flourishing and profits are rolling in it’s important to financially protect your investment. When owning a business there are many pieces to the success of the business.
What happens if a partner dies? Would you really want the family members of the deceased partner coming in and having a say in your business?
Or, if key employees pass away, that key person brought those big accounts in, will they be at risk?
Worst case, if you the owner passes, there will be a lot of legality issues perhaps. It might be smart to have business life insurance in place to assist in estate planning.
Here are the two most important business life insurance to have in place, buy/sell agreements and key man life insurance.
Buy Sell and Key Man Life Insurance
Key Man, or key person insurance is to protect the company from the sudden demise of a key employee. This can be life insurance or disability insurance or the combination of the two.
This will give the company the time to find a replacement as there were big shoes to fill. This will also protect the company from the loss of business that the key person brought to the table.
A Buy-Sell agreement is when you have multiple partners. Life insurance can be structured to fund this agreement. In the event that a partner dies, his percentage ownership would be bought out by the life insurance policy via death benefit and payable to the deceased family.
These plans are very valuable because as an owner you do not want family members with no skills in the area of business to have a say. When structuring this type of policy the life insurance company will want to know the percentage ownership of all partners.
You can also have a disability policy in place in a combination to protect against if a partner becomes disabled.
Individual Owner Life Insurance
If you are the sole owner of the company what happens if you die? How will the company stay afloat?
Most business owners may have outstanding loans that the company is responsible for. Sometimes debt is vital to the business to keep cash flow and inventory in place.
The other option is for the family to have to liquidate to cover for these loans and debt, but why? I am sure the family has been through enough.
Because your family is in emotional disarray individual life insurance is the best route. Again, if the family has to sell the business quickly it usually results in a discount depending on market conditions. Having an individual life insurance policy will protect your family.
Business Insurance Premiums are Tax Deductible (Or Are They)
Above all, whenever you purchase life insurance you want to speak to a tax professional to make sure you can maximize write-offs on the business tax return for the tax year.
When it comes to tax-deductible life insurance premiums if the business is the beneficiary then the premiums will not be tax-deductible. For instance, a buy-sell agreement premium is tax-deductible. For a key man, they may not be tax-deductible.
For disability insurance, premiums are tax-deductible on form 1040. These will assist with possible medical expenses if the partner or key person is disabled and is unable to work.
When it comes to being a small business owner you need to always adapt to the fluctuating, market conditions. You never know what challenges may arise.
With that said, death usually happens unexpectedly.
Business life insurance is very important. If a partner dies, the buy-sell agreement will be funded by the policy.
If a key man dies, the company can weather the possible storm created.
And if a sole owner dies, the family can pay off debts and take the time to mourn and figure out their next move.