Why Would a Business Owner Need Life Insurance?
Life insurance is a great way to cover the loss of an income source for a family. When thinking about this scenario, typically we are thinking of an income coming from an employer. But what if you are the employer? Personal life insurance can help your family replace your income if you pass away, but how will your business be affected?
There are many ways to utilize life insurance in a business setting. One of the most common uses is referred to as Key Person insurance. The intent of this insurance is to help in the replacement of a key – or VERY important – employee. This employee must be so important, that their loss would cause great harm to the ability of the business to continue. Life insurance is actually a great way to cover this risk.
The business purchases a life insurance policy with the key employee as the insured and the business as the beneficiary. The business then pays all the premiums. Should that key employee pass away, the business would collect the death benefit which could be used for everything from recruiting a suitable replacement to purchasing new equipment in order to keep the business going.
Another common use of life insurance by business owners is it can help in the transfer of ownership of the business after the death of an owner. This is commonly called a Buy/Sell Agreement. These types of plans can help ensure that a business stays under the ownership planned on by a single owner or an ownership group. These types of arrangements can get very complicated – especially if there are more than 2 owners involved. In essence, the death benefit provided by the life insurance policy allows the remaining owners to purchase the share owned by the deceased.
About the author: Seth Gowdy is the Sales Manager for Pivot Insurance and holds multiple insurance and securities licenses. He has been part of the financial services industry for nearly 20 years. In his free time he enjoys being outdoors fishing, hiking, and geocaching with his wife and two children. Seth most enjoys helping clients with Pivot’s anonymous life insurance quote process and needs calculators. You can reach Seth at 1-800-651-1953 or SGowdy@pivot.com.