Most business owners are both financially and professionally risk takers by nature.
But risk needs to be managed whenever humanly possible. This is why we buy life insurance, to protect people who depend on us if we should die.
Is life insurance really necessary? Most business owners are very opportunist and many don’t think they are going to die prematurely.
However, would you wait or not take out insurance on your equipment or building?
By not having life insurance coverage, your family will not only need to find a way to replace your income and pay the bills after you have died, they will also have to pay off any outstanding liabilities and loans associated with your business.
If you have substantial assets your family may be just fine. However, if people rely on your income and your debts are more than they can handle, how will they manage?
As a business owner myself, who has been selling life insurance for over 25 years, we have found that life insurance is often not a popular topic. It is not exciting as buying a house or growing your company.
Not to mention, the life insurance we buy on ourselves will never benefit us directly. It is a very unselfish purchase, and your family and business’s future depends on your unselfishness. Life insurance is an easy method to provide for your loved ones and business associates after you have died.
How Much Life Insurance do Business Owners Need?
The first step is to evaluate your needs both personally and professionally. What amount of money will your family or business need if you die?
To do this run an inventory of your business debts, your mortgage payments, income needed for your family, and college loans for your kids. This will help determine the amount of life insurance you may need and serve as guide in your search for policies.
It is always in your best interest to shop around and compare quotes. To get sample term and permanent life insurance quotes, use our life insurance calculator called Life Insurance Quotes for Business Owners.
Take your time and it often advisable to make sure to have your contract inspected by your attorney. This becomes very important for business owner seeking affordable term life insurance coverage for a Key Person policy, loan protection, or Buy-Sell Coverage.
Also, take the time to discuss the policy with your family and business partners to make sure that they understand the details of your plan. After all, they are the people who will be dealing with the lawyers after you pass away.
Types of Life Insurance for Business Owners
Term Life Insurance for Business Owners
With term life coverage you pay monthly premiums for a period of between 10 and 30 years. If you pass away while the policy is active, then your beneficiaries receive a death benefit.
But if your primary motivation for purchasing life insurance is to guarantee against a loss of your business income for your family, then by the time your term expires, you may have already retired and no longer feel the need to carry as much life insurance.
When it comes to finding the best prices for term life insurance for business owners, the most affordable life insurance prices can usually be found with companies such as: Prudential, Banner Life, American General, and Protective Life.
Hybrid Universal Life insurance for Business Owners
If you do feel you may still need some coverage after your business is no longer operational, you may want to consider a new hybrid universal life(term U/L) policy. Entrepreneurs looking for a longer duration have a more flexible choice with a new universal life insurance plan that combines elements of both term life coverage and universal life.
Hybrid universal life (term U/L) policies are much cheaper then other forms permanent coverage such as whole life coverage because they do not emphasize cash value accumulation.
However, the premiums and death benefits can still be guaranteed for a specific time frame. So, premiums can be scaled to coordinate with your desired budget and the face amount required for your family
Typical universal life and whole life insurance contracts only allow for lifetime premiums and death benefits until the age of 100. However, hybrid universal (term U/L) offers a much smaller premium in exchange for coverage which is dialed into a specific age.
Furthermore, If the policyholder does live beyond the originally selected age, the death benefit will simply begin getting smaller, while the original premium will continue to remain the same.
This plan design offers a happy medium between term life insurance and higher costing permanent policies which build excessive cash values.
John is a 35 year old business owner. He needs a $1,000,000 policy which guarantees his death benefit until he retires at age 65.
He buys a term U/L premium which is much cheaper then if he had selected a premium for coverage to last until he is age 100.
However, if he would like coverage after he reties at age of 65, the premium will continue to remain the same, while the death benefit will slowly start to decease until age 100.
This will allow John to continue his coverage at the same cost even if he lives an extended life.
Permanent Life Insurance for Business Owners
Most financial planners caution business owners against buying permanent life insurance or whole life insurance because of it’s cost.
With permanent life you build equity, but most permanent life plans are substantially more expensive than term life plans. That’s because permanent life insurance includes an investment component that allows policy holders to take out loans or withdrawals against the value of their policy.
However, permanent life insurance often takes over 15 years to generate any significant cash value. Many self-employed people would be better off by investing in either an IRA or their own retirement plans compared to investing in this type of policy.
In the end, most permanent life insurance is purchased by wealthy business owners who are essentially using their life insurance policy as a wealth transfer vehicle or to assist their families with paying estate taxes.
Are you affluent and considering a policy for estate planning? Then, in this case we strongly recommend using permanent policy like guaranteed universal life or a survivorship life insurance using only contractually guaranteed premiums for your entire lifetime.
However, for the majority of self-employed individuals, these policies are just too expensive. Our advice to most business owners is simple: find a policy you can afford for death benefit required and concentrate on running your company.
If you need help with a customized proposal to any age you specify, please call us at 1-877-249-1358.