Running a small business comes with many challenges, from coming up with an innovative service offering to generating the funds to actually kickstart the business. With all of this to deal with, life insurance is probably the last thing on your mind. Most of us know how important life insurance is for our families in case something were to happen to us, but we don’t think we need it until we get older. When it comes to running a small business, you may be wondering if it’s an expense you can avoid. So, do small business owners need life insurance? We will answer this question in this blog.
Do small business owners need life insurance?
The short answer to this question is yes – small business owners do need life insurance. It doesn’t reflect how successful your business is, nor is it a legal requirement, but for true peace of mind that both your business and your family are protected should something happen to you, it’s a must.
We don’t like to think about it, but the unexpected can happen, and not having preparations in place for what will happen to your business assets when you pass away could result in disaster for your company. Life insurance is essential for protecting investors, partners and all stakeholders, as well as your family and estate.
Why is it important?
With business loans, consider what would happen to these loans should you pass away without having paid them off. For example, you may have taken out loans to get the business started or to rent space or equipment. Your family would need to settle these should anything happen to you, eating into their savings and possibly resulting in them making hard decisions such as selling the business or your home. Having a suitable business insurance policy in place will cover these loans if you pass away.
Plus, the main function of business insurance is to act as a replacement for the financial shortfall that can be expected, should you pass away, and this is especially important when it comes to small business owners. Small business owners are often the main income earner in the family, so there needs to be protection in place should something happen to you. This is all the more important because many small business owners have their whole life savings invested in their companies. Should you pass, your family and the business could end up with nothing at all, so business insurance can be vital.
Is there specific business life insurance?
Yes, there are life insurance plans available that are particularly tailored to protect businesses and business owners. A business-oriented insurance policy manages what happens to your company if you die, instead of leaving everyone in the dark wondering how they will fund the business going forward, who will own shares, what will happen to stock or employees, and who the new owner will be.
For instance, some insurance policies allow the company to be properly disbanded or sold (whether to a third party or to existing employees), or funds can be used to open a new business. Or, your insurance could provide the funds needed to keep the business going while a new person is found to replace you. If you have a business partner, you could organise for your life insurance to stipulate an automatic buyout if one of you passes away. Shareholder protection insurance could also be necessary. This provides shareholders with the funds to buy shares from each other if one of them was to die. Without this in place, the company may have to deal with several issues when it comes to retaining ownership.
This is often called key-man or key person insurance, so called because the business owner is the key person in the company and this type of policy prepares protection should this person pass away.