8 Big Reasons Small Business Owners Need Life Insurance

It is not surprising that some business owners do not prioritize acquiring life insurance for themselves and their employees.

What they do not know is that such insurance can be beneficial for both the business and the policyholder. If you are still unconvinced, we have listed down eight reasons why small business owners should buy life insurance:

1. Your family depends on you and your business

Whether you own the business or you are one of the employees, it is more likely that your family depends on you and your income.

Hence, if something unprecedented happens to you, it can cause a financial strain to your family. Not to mention that they may be unprepared to take over your business. And, mind you, selling off a business can be cumbersome.

This is where having life insurance could come in handy. That’s because having a policy can protect your family from being in a financially difficult position.

2. It encourages employees retention

While many business owners believe that purchasing life insurance for employees is an expensive pursuit, it’s actually more expensive to hire employees over and over.

Sure, there are many factors that affect employee retention. However, making your employees insured is one way to tell that you care for their well-being. And this can help improve employee engagement. Thus, encourages employee retention.

If you worry about how much it will cost your business, you can compare life insurance quotes online so you can pick a suitable policy that you can afford.

3. You can reward your employees

Aside from retaining your employees, having life insurance allows you to reward them with an Executive Bonus Plan.

This is the method of compensating your key employees by paying the premiums of their life insurance policy.

What’s cool about the Executive Bonus Plan is that the employees own the policy, they can name their beneficiaries, and they have control over the cash value. Moreover, the insurance premiums are tax-deductible.

4. You can minimize business risks

If you can’t provide life insurance to your employees at the moment, it is important that you have Key Person Insurance at the very least.

This is a specific type of insurance that business owners can purchase to keep their small business afloat in case the owner unexpectedly passes away.

During this trying time, the insurance provider will release the death benefit to the company, which can be used in various ways. This includes paying off lost-of-business costs or the expense of looking for a replacement.

5. Ensures business continuity

Just like with Key People Insurance that helps keep the business afloat, life insurance can also be used to fund a buy-sell agreement.

Such an agreement protects the business and its shareholders in case the owner withdrew or retire or unexpectedly pass away. Doing so allows the business to run successfully and grow during the transition period.

That’s because:

It ensures that shareholders get to decide what will happen to the business
It helps layout a succession plan
It minimizes the dispute between the remaining shareholders

6. Protects your business’s intellectual capacity

Similar to the buy-sell agreement, there is an insurance strategy called “key person” policy.

This kind of policy allows business owners to protect their company from revenue loss in case something unprecedented happens to one of their key people.

So instead of applying for a business loan in a bank, you can use policy loans to off-set the costs due to the departure of a key employee. This allows you to fund business expenses and future liabilities.

What happens is that the death benefit from the key person policy allows you to fill financial voids caused by the departure of your key employee.

7. It helps to pay back loans

There are lending companies that require businesses to have life insurance before providing a business loan.

That’s because lenders are usually concerned about whether your business will survive without you. Not to mention that lenders and banks only want to protect their financial interest just in case something unprecedented happens to you.

Meanwhile, life insurance allows you to pay back business loans so that you’ll not resort to selling your business.

8. To store your business capital

If you are a business owner, it would be ideal to opt for whole life insurance. That’s because it earns cash value over time from interests and dividends.

And the beauty of it is that you can use the cash value to cover business expenses in case the need arises. Meanwhile, your business capital can be funneled back to your insurance provider so that it can continuously accumulate cash value.

Thus, you have funds that you can liquidate in the future. This is much better than applying for a business loan and then paying it with high-interest rates.

Generally, purchasing life insurance can be used as a business asset. That’s because it provides flexibility, growth, and security ‒ just like what we have mentioned above. This also explains why Fortune 500 companies have whole life insurance and have been utilizing it for decades. So if you are a business owner and do not have life insurance yet, now is the best time to acquire one.