Being a business owner means you have many expenses. Whether it’s day-to-day monthly expenses, or large tax payments to maintain your business, it is important to consider what will happen if you no longer have income coming in to support your business
Similarly, what will happen to your employees if you are no longer around?
That is where life insurance can come in. While life insurance is traditionally used to replace income and maintain lifestyles for individuals and families, it can be a valuable tool for businesses to keep clients, employees, and prevent bankruptcy
Why should business owners buy life insurance?
Even if you already have a life insurance policy for your family, you can still get a life insurance policy for your business.
Owning a life insurance policy for your business can be an important financial tool that will not only give you peace of mind in the case you are unavailable to run your business but also protect your legacy in case you pass away
Additionally, if you have employees who work under you, having a life insurance policy will help them maintain their jobs and also allow them to keep the business running when you are not there.
How life insurance can be used to run your business
When purchasing a life insurance policy as a self-employed individual, the main consideration should be the financial burden of running your business.
In the case of your unexpected passing, do you have a succession plan in place or a financial plan that will help your successor run your business?
If the answer is no you should consider life insurance because this can help maintain your business and avoid bankruptcy
Hiring someone else
Considering who will run your business in your place is important when you are self-employed. Since you are the main business owner, you want to protect your business.
That is why having a life insurance death benefit can help fund the salary to hire someone else to keep your business running.
Whoever you decide to succeed you in place, this trusted professional should have to peace of mind they have the available funds to take on the job
This will also help to ensure you can maintain your clients and provide the same services when you are gone
Paying off debt or real estate
Owning a business can be expensive. Unless you had a large amount of money to invest when you first started, you likely had to take out some sort of loan or mortgage to start your business.
These loans will still be due and any late payments could risk your property from going into foreclosure.
Similarly, if you’re unable to pay off your debt, you could be forced to file bankruptcy and lose the business you have worked hard to build
Additionally, if you owe any back taxes to the IRS due to not paying them over the years, this money from your life insurance policy can be used to help alleviate any tax burden that your business has accumulated.
Helping business partners acquire your shares
If your business is large enough to have multiple business partners to operate, you likely have an agreement where each person owns a percentage of the company. but when you pass this will all change.
Having life insurance will give these partners the money that they are owed now that you are unavailable to own a stake in the company. This can prevent any legal battles that could arise due to not having access to the funds to maintain the proper ownership division of a company.
Who can be the beneficiary of a policy?
You can name a beneficiary on your life insurance policy to receive any death benefits stated in the policy. When you own a policy as a self-employed individual, you can actually designate different beneficiaries other than your family.
While naming your family could be a good idea to maintain their income, this will not cover the day-to-day operations of the business that bring in the income.
Instead, a beneficiary you could consider could be your business partners. You can decide to divide the death benefit up, giving them the money they are owed based on the percentage stake you have in the company.
This can ensure that when you pass they can equally own the company and avoid any legal battles in the division of the company shares
How to enroll in a life insurance policy
Enrolling in a life insurance policy as a self-employed individual can be just as easy as enrolling if you just want to purchase a policy to protect your family
The best way to go about this would be through a licensed broker because they can work with you and determine the correct amount of life insurance that you would need to cover all of your business expenses.
This varies based on your yearly operating expenses and any debts or shares that would need to be owed if you passed away. It is important to thoroughly calculate these amounts to ensure that the life insurance policy will provide the right amount of coverage
Who should be covered?
Not everyone in the company should be covered under the life insurance policy, but it is a good idea in the long run to offer this benefit to your employees.
The key stakeholders in a company such as the owners should have a life insurance policy to ensure that the business can run as usual when they pass away. This is because they make all the decisions and help to generate the most income.
Employees can also purchase a life insurance policy and depending on their role in the company can determine the amount of life insurance that they apply for.
Overall, being a self-employed individual comes with many unexpected expenses. Life insurance is a financial investment that can help to protect your business and the investment that you have made into it. It also can be a way to protect your legacy when you are gone and ensure that your business will not go bankrupt.
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