Small business owners can often be in the dark about the benefits of life insurance for a successful company. Everyone’s life insurance needs are different. Each policy is unique, which is especially true for a small business owner. You will need to protect your business and your family.
Of course, understanding your life insurance needs is not always clear. No one can tell the future so an unexpected death can affect your family and have major repercussions for your small business. Your life insurance policy can protect your family and your business from financial obligations when you are no longer around.
Family Coverage
Family comes first, as a family business we understand that, so knowing the type of life insurance coverage that is right for your family is important. Often the simplest coverage for your family is to own a term life insurance policy. For this, you choose the coverage amount you want your family to receive in the event of your passing within a certain amount of time. This is called the death benefit.
For example, you choose a death benefit of $1,000,000 for a term of 20 years. If you die within the 20-year time span, the beneficiaries you choose will receive the full amount listed on your policy, tax-free. This can help cover family expenses, like the mortgage, as well as cover funeral costs for you.
If you live past the term, your family will not receive the death benefit but you can renew your policy. As you age, your premiums will cost more, since the risk of death within the next time block is higher as you get older. This means the monthly payments will be higher for the same amount of coverage, as you age.
Term Life For Business
Strictly speaking, life insurance is not for business, but the death benefit can be used by the beneficiary as they choose. Perhaps your business will stay in the family, as is often the case with family businesses. A death benefit can help your family pay for business liabilities during the transition period after your death. This will allow your family to mourn, without the added stress of business liabilities, like wages, loans, and suppliers bills. The business can continue to operate while your family adjust to the fact that you are no longer around.
Insurance for key employees
Often small businesses rely on more than just the family to operate. A business’s operations can be negatively affected by the unexpected death of a key employee. Your business’s sales could suffer, and ultimately its
profitability, while you look for a replacement for this employee. If you have an insurance policy on your key employees, the death benefit can help cover the lost revenue while you adjust your business to the new reality. Often this means finding a replacement or training someone to bring them up to the level of the key employee.
Term insurance is often a popular choice for key employees since they are often less invested in the business, and employed for a shorter period of time than the business owner.
How To Calculate Your Insurance Needs
We’ve blogged about calculating your personal insurance needs before, and when it comes to covering business expenses, the process is similar.
First, calculate your personal expenses. This can be any personal debt, such as a mortgage, as well as any other finances you want to be covered, like a car loan. You may also want to include funeral and education expenses when calculating this amount. You can work with an insurance advisor to make sure you are not leaving any personal obligations out of your calculations. We deal with this process every day, and we have the expertise and experience to get this right.
Next, you will want to calculate your potential business expenses. You should think about short term and long term liabilities. Some expenses include taxes, salaries, or accounts payable. Add these liabilities up to get your potential business expenses.
The Math
Finally, you will want to put the two amounts together, family obligations and business expenses. This will be the total amount for your term life insurance policy.
As a small business owner, you will have dependents, both personal and professional. Life insurance can help your family and business stay financially secure, in the event of your death. Calculating how much life insurance you need can seem like a big task, but a professional insurance advisor can help you. At Hull Life Insurance Corporation, we have helped hundreds of small business owners with their life insurance needs.
Contact us today and let us insure your small business’s future.
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