Term Life Insurance and Business Partners— Why They Go Together
Did you know that term life insurance can ensure a business can continue? Are you a business owner? Do you have a business partner? Have you discussed what would happen to your share of the business upon your death? Is your family ready (or capable) to step into your role in the business or will your partner need to look for someone to replace you? These are just some of the things to look at as a business owner. Life insurance may be a solution for some of your financial needs – either for key-man insurance or under a buy-sell agreement you and your business partner may have. It protects your family as well as your business needs.
Ultimately, your family (spouse, children) inherit your business – or your portion of it. Your partner may want to buy their share and having life insurance would help achieve that. The amount of coverage purchased depends on a variety of factors - the business’ market value, the percentage you own of the company, or how much the business would need (or lose by your absence as a key person in the organization) until a replacement is hired.
Term life insurance is a viable option for protecting your business interests. You may pay lower premiums for a higher amount of insurance with term vs. permanent life insurance. Term life insurance typically comes in four level premium periods – 10 years, 15 years, 20 and 30 years. Your age will also determine which level premium period is available to you. The older you are, the less-level period is potentially available.
The insurance policy can be set up two ways, (1) the business owns and is the beneficiary of the policy, or (2) the business partner owns and is the beneficiary of the policy. In either scenario, under a buy-sell agreement, the policy owner uses the proceeds to purchase your share of the business from your heirs. If purchased as a key-man policy, the death benefit may provide a financial cushion to the business until a replacement is hired and fully trained.
Life insurance can help your surviving business partners to have enough capital to keep your business going. Be prepared and make sure you are fully protected. As always, we encourage you to discuss these options with your attorney and accountant.
About the author: Melanie Tretheway has been in the life insurance business for over 30 years. She is a mother of two who loves baking, reading, gardening, and taking care of her family. Melanie takes great pride in making sure you are informed, especially when it comes to choosing the right life insurance policy for your family. You can contact Melanie at 1-800-651-1953 or MTretheway@Pivot.com.