As a business owner, you have to take on a lot of financial risks on a daily basis. Because of these risks, you probably have some business insurance policies to help protect against them. Although you may have policies that will protect you from business problems, you might not have protection against the loss of an employee. You might not even have a policy in place that will make sure your heirs don't have any problems when you pass away. With the right types of business life insurance, you could avoid any of these problems, and rest easy knowing that everything is taken care of. Here are a few things to consider about business life insurance basics.
Setting Up Buy-Sell Agreements
One way in which business life insurance is commonly used is in the area of buy-sell agreements. With buy-sell agreements, you set up the sale of your business in case one of the owners of the business passes away. For example, a business partner may agree to buy your share of the business from your family when you pass away. With the buy-sell agreement, you set up the terms of the sale such as the purchase price, and how quickly payment will be made.
When using a buy-sell agreement, it often makes sense to purchase business life insurance, so that there are no issues coming up with the money that is required to pay for the debt. When each partner in the business purchases business life insurance on the other partners, enough money will be generated when one person passes away.
For example, when setting up a buy-sell agreement, each person can buy a life insurance policy on the other for the amount of their share of the business. If the one share of the business was worth $1 million, then a life insurance policy for $1 million to be purchased on each member. Then when a partner dies, the other partner will receive $1 million to use to purchase their share of the business. This works well because it ensures that enough money will be available for the purchase of the business when an unexpected death occurs.
Key Person Insurance
Another type of business life insurance that is commonly purchased is key person insurance. With key person insurance, businesses can take out life insurance policies on important employees within their companies. After taking out this type of policy, if that person dies, then the business gets a lump sum of money from the death benefit of the policy.
The purpose of buying this type of insurance coverage is to help ease the transition after an important employee dies. For instance, in a small business, a business owner may rely on a few select people to run things for them. If one of those people dies unexpectedly, it could really negatively affect the business in the short-term. It might take months to be able to find an employee to replace the one who died, and to train them appropriately. When the company receives a large sum of money, this money can be used to cover any lost profits that come about as a result of the death of the key employee.
Key employee insurance can be a very valuable type of coverage to have if you are a business owner, and you rely on some important people to get you by. If you want to buy this type of coverage on one of your employees, you have to notify the employee, and get their authorization. You can't take out life insurance policies on people who do not know that they are covered by a policy. Some employees may not like the idea of you benefiting financially from their death, and they may not authorize you to buy this type of policy. If they do authorize you to buy the policy, you can go ahead and get the coverage that you need to protect your business interests. This is quite popular amgonst business executives that are divorced. If the owner of a company or corporation was married while building up the company, the spouse is entitled to profits in many states. This remains true even after one divorces their spouse. People purchase divorce life insurance to protect their business, so the company can buy out the ex-spouse and continue to function as a company,
Group Life Insurance
In some cases, businesses will buy life insurance policies as a benefit to their employees. These life insurance policies typically have a relatively small benefits with short term durations (like 10 year term life insurance) but they can add to the total life insurance benefits that their heirs would receive when they die. In most cases, the employee does not have to pay any extra for this policy. The company picks up the tab, and allows the employee to choose the beneficiaries that he wants.
One of the attractive things about buying group life insurance is that it typically offers guaranteed approval for employees. The policy is written as a group, so they don't have to do medical exams or questionnaires for the employees. This makes it possible for anyone to get approved for life insurance coverage.
If you are interested in life insurance, fill out the form on this page
to get an up-to-the-minute quote for the policy you need.
Much planning goes into establishing and maintaining a business. Part of that should be preparing for scenarios that could impact the livelihood of the company. An expected passing of the CEO,partner, key employee, or top executive could suddenly effect the company's future negateively.
In preparing for such an event, corporations will design a contingency plan. These plans may include Insuring the executives and key employees through a business life insurance policy.
Small and large business owners work hard to establish their business and achieve success. However, there may be planning issues that need to be addressed to be sure their success continues.
Business insurance is a term policy that covers what happens to your business when you, the owner dies. It can also cover you in the event of a key employee death, and the ability to offer life insurance benefits to employees.
The corporation or LLC will purchase the policy as the "owner". The CEO or top exec will be the insured. Meaning that the business's successor and will be the insured and the corporation itself will pay for the policy as the owner and beneficiary. This will benefit the company's success and continuation moving forward.