By: Jeff Rose
on Thursday, January 03, 2013
We all are concerned about our families and get life insurance so that they do well even after us. It's easy to head online and get fast term life insurance quotes and have your family taken care in a matter of minutes. But what about if your a business owner? How do you get you life insurance for your business to make sure it still runs smoothly if something happens to you or one of your key employees?
When it is about business in today’s commercial world, one of the important factors is continuity - how your business can keep running without a hitch. Whether it is a small scale business or big enterprise, it is important that you have an idea of how your business can survive when you are not around to take care of it. This is not just you but also if you incur a loss of any important people in your business. When this kind of business insurance is lacking then it’s almost a guarantee that you'll have many obstacles (and headaches) to overcome.
Know More About Business Life Insurance.
This is one of the varieties in insurance policies where the insured is the executive or any important persons of the company and beneficiary is the company itself. Business life insurance sometimes is made for few or all employees. This is an additional benefit to the employees.
This is more suitable for single owner businesses where the sudden dismissal of the owner can be a burden on the remaining people. When a single proprietary business is already on loans and if the owner dies, then the burden will automatically move on to the next executive in-charge or the family. With insurance for business, the loans can be covered as well. The most common types of insurance used for this are universal life insurance and term life insurance.
These policies offer both cash benefits and timely assistance and also tax benefits to the business owner. Before taking any policy, talk to an insurance agent that specializes in business insurance to make sure the policy gets setup properly.
There are various types of insurance policies as below.
Buy – Sell Agreement:
Most of the times when there is a business in partnership, this kind of insurance would fetch more. When a partnership enters into a business, you'll first need to make sure the contract and the formation of the partnership are done properly.
The most important clause is where it talks about the buy-sell agreement. It should explain how any partner can sell his shares of the company or buy from others. This clause also includes the point as to what needs to be done when one of the partners dies.
There is this point in this clause which says that the existing partners can buy the deceased or selling partner shares. But happens when the remaining partners don't have enough money to buy the stock? Enter the need for life insurance....
Business insurance policy alone can protect a company from this kind of scenario. This is often referred to as funding a buy-sell agreement with life insurance. This policy will cover the decease partner’s share allowing the remaining partners to run the business without interruption.
If a company purchased a cheap term life policy then the company will be paid of only the death benefits of the expired. But if a company takes permanent or whole life policy, this will accumulate cash benefits also along with the death benefit payouts. These benefits will belong to the deceased partner’s heirs or the remaining partners.
Types of Programs That Employers Can Use
Life insurance for your business is available in another format called an employee benefit program. This is that option where employers pay the insurance for employees and it is included as part of their salary. This can be an attractive feature for employee retention to keep your good employees happy. Here are a few different options you can provide:
- Split Dollar Plan: This type of insurance is where the complete benefit on death, or a huge portion of it will belong to the company as beneficiary, then cash value will belong to the beneficiary who is nominated by the employee.
- Reverse Split Dollar Plan: This is the complete opposite of the split dollar plan where the company will get cash value, the the employee will get the death benefit.
- Group Life Insurance: This is where the employer will pay the complete insurance cost of the employee. This usually is done on those policies where the cost is very minimal so it is paid by the employer. Employers make this cost usually as a part of employees’ salary as noted above.
- Death Benefit Only Plan: This is where the death benefit will be paid directly to the beneficiary that the employee names. This would be a non-taxable event.
There are many types in these policies just to give you more options. These options are given based on various different needs of the beneficiary and employees. One has to choose carefully as to which one will suit your requirements in a better way.
Key Man Insurance - Covering Your Most Valuable Employee
When a death of an important person or someone at an executive level occurs at your business, the loss is not only financial but also a strain on the rest of the remaining employees. The cost that the company will incur on trying to find a suitable replacement is almost impossible to predict but one could expect it to be very substantial. This is the ideal situation where where key man insurance makes sense. These types of costs are taken care by this policy.
As you can see, a thriving business is just in need of life insurance, if not more, than an individual. It's important to constantly review your business as it develops and conduct appropriate risk assessments where insurance can protect you from the unexpected.