Life Insurance Strategies for Small Business Owners

November 16, 2021

Is life insurance a key part of your business strategy? Planning for the future helps you identify your goals and take the steps to reach them, and life insurance plays a role in ensuring your business is prepared to continue in the wake of the unexpected. 

From the relationships that make your business run to the office you often call a second home, you want to make sure that you’re covered. Here are a few of the life insurance strategies we recommend for small business owners. 

Key Employee Insurance

Key person insurance covers the loss of someone critical to your business. While this is more common for larger businesses, smaller companies are the ones who can benefit the most. Small business owners are often especially reliant on a partner, executive, or other “right-hand man” to keep production up and running. Losing this person would be a tragedy that could also put the business at risk.

With key person insurance, the company purchases a life insurance policy on the life of an employee considered to be a “key person.” In this policy, the company is the beneficiary and pays the premiums. If the person on whom the policy was taken passes away, the company can use the death benefit to compensate the family, recruit and train a replacement, and cover the next month’s salary for immediate hires. 

Suppose the company can’t or chooses not to continue operations. In that case, it can use the money to pay off debts, pay investors, and provide severance benefits to employees, giving the company an option other than immediate bankruptcy.

In addition to life insurance, key person insurance is also available as disability coverage if the named individual is no longer able to work.

If you need guidance about who your business should consider as a key employee, reach out to an advisor today!

Buy-Sell Agreements for Business Partnerships

If you built your business together with other partners, buy-sell agreements would establish a clear plan to handle an event where one partner can no longer uphold a business agreement. 

Life insurance can find these agreements to protect other partners in case of an unexpected death. If a company has three partners with equal shares, they can take out a life insurance policy on each partner at a third of the overall business value. 

If one partner passes away, the other two partners can use the money to buy out the deceased partner’s heir, usually a spouse or child. This allows the family to be taken care of financially without worrying about being involved in the company. The surviving partners can then divide the third share between the two of them. 

If your company currently has a buy-sell agreement, it’s a best practice to increase the value of the life insurance policy as your business grows and increases in value. If you haven’t looked at your policy in over a year, we recommend reviewing your policy and making any adjustments now.

Group Insurance for Your Employees

Providing life insurance for your employees is also a great way to retain and reward top talent. With group life insurance, your business can pay a standard rate to cover your entire team. You can either assume the entire cost of the insurance or subsidize it so that your employees can get their life insurance for a very low price! 

You also have multiple life insurance coverage options for your team. You can customize the policy amount for each employee, often one or two times the amount of their annual salary, or decide on a number that will reflect the same for all employees. 

Providing life insurance for your employees is one of the most valued additions to an employee benefits plan. Learn more about what employee benefits you should consider for your small business in this article!

Protecting Your Business With Life Insurance Strategies

Key employee insurance, buy-sell agreements, and group insurance are just a few of the life insurance strategies that can help your business grow and thrive for many years to come. Your business is a result of your vision and hard work, and your customers and employees are counting on you!

Our advisors are available if these Life Insurance Strategies prompt questions or concerns. Schedule a consultation today to learn more about what life insurance strategies are suitable for your small business!



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