Finding Affordable Life Insurance For Business Owners

When you go into business with partners, you and your co-investors are very dependent on each other -- in terms of both finance and a shared workload. Whether your company is just starting or you've been in business for years, it's important to make sound decisions about business partners and life insurance. When you take out key person life insurance policies on each partner, the company will receive a lump sum life insurance payment in the event that one of the covered individuals dies.

Typically, surviving partners use proceeds from key person insurance policies to purchase outstanding stock shares per the terms of the company's buy-sell agreement, to hire someone to handle the day-to-day duties performed by the deceased partner, and to take care of other operating expenses. When thinking about whether or not you can afford key person life insurance, it's important to stop and ask yourself, and your partners, if you can afford to go without this important protection.

 

Not everyone needs second to die life insurance, but it can be very beneficial in certain situations. Unlike a traditional term or whole life insurance policy, which pays benefits to a named beneficiary after the death of an insured individual, second to die life insurance actually covers two people. Benefits are paid out only after the deaths of both insured parties.

• Estate Planning: Second to die insurance can be a powerful estate planning tool for couples who expect to leave a significant estate to their heirs. This type of insurance policy can be very beneficial in situations in which the size of an estate passed on to children after the death of both parents will necessitate payment of a significant sum of estate taxes.
• Funding for Care of Special Needs Offspring: Parents with special needs children often take out second to die life insurance policies. Many special needs children will need expensive care throughout their lifetimes, and parents can make sure funds will be available even after their deaths by planning ahead with this type of insurance.
• Charitable Giving: In many cases, couples who want to leave a significant sum of money to charity do so by purchasing a second to die life insurance policy and naming their favorite charity as the beneficiary.

Nobody wants to pay too much for life insurance. When you're in the market for affordable life insurance, it's important to understand the factors that impact how much you're likely to have to pay in policy premiums.

• Age: The younger you are when you apply for life insurance, the lower your premiums are going to be.
• Health: Before you're approved for a life insurance policy, you'll be required to share information about your medical history, and you might even be required to undergo a physical exam. If you're in good health, with no major illnesses or recent surgeries, you'll benefit from lower premiums. If you have significant health problems, your premiums will be higher, if you're even eligible for coverage.
• Smoking Status: Life insurance premiums are higher for smokers than for those who don't smoke. If you quit smoking while insured, you'll need to wait a year and apply for lower premiums. You'll have to undergo a blood test to verify that you no longer smoke before your premiums are reduced.
• Occupation: Individuals who work in particularly high-risk occupations often have to pay higher rates for life insurance.

 

Want to make sure your family members won’t have to worry about how they’re going to make ends meet if something happens to you? By investing in a quality whole life insurance policy, you’re making an important decision that will give you and your loved ones peace of mind for years to come.

When you choose whole life coverage, you don’t have to worry about seeking continued coverage later in life, when your age or health conditions might make it difficult for you to get the protection you need. When you opt for a whole life policy, the premiums you get will be based on your age and health at the time you purchase the policy.

With a whole life policy, you’ll make level payments and your coverage will remain in effect throughout your lifetime. In an emergency you can cash in or borrow against the policy.  Also, in some cases, withdrawals can be made to help fund your retirement. You’ll even be able to use the value of your whole life policy as collateral for business or personal loans. No matter how you look at it, whole life coverage is a win-win proposition for you and your loved ones.

 

When you go into business with other people, it's important to stop and think about what might happen in the event that you or one of your partners passes away. It's one thing to start and run a small business with a particular person that you know and trust, but it's another matter entirely to find yourself owning and operating a business with one of your partner's heirs in the event of his or her death. However, if one of your partners dies and you don't have a legally binding agreement about what will happen with his or her stock shares, that's exactly the situation you'll face.

That's why it's so important to have solid, sound buy-sell agreements in place as soon as you take on a business partner. When you go into business, you'll want to draft a legally binding document that specifies exactly what the partners can and cannot do with their stock. If the partners agree that stock should not be assigned to heirs, the agreement will stipulate that the corporation will buy back outstanding shares in the event of an owner's death.

Of course, it's important to have a guaranteed source of funding, so you won't have any problem buying back your partner's stock from the estate should the agreement need to be enacted. That's why business partners and life insurance go hand in hand. It's important to take out a key person insurance policy on each of your company's partners. With proper life insurance in place, there will be no worries about how to enact the buy-sell agreement should the need arise.

 

It's certainly important for small business owners to budget carefully and handle their company's funds in a responsible manner. While it's important to watch spending, it's also important to make sure that the business owners are covered with a sufficient amount of life insurance. Without proper insurance coverage, the death of one partner can result in financial disaster for small businesses. Fortunately, the availability of low cost term life insurance makes getting proper insurance coverage affordable for even very small and new businesses.

By taking out inexpensive term life insurance policies on each partner, entrepreneurs can make sure that their company will have the funds needed to carry on even if one of the owners passes away. When the decision is made to purchase key person insurance, the owners need to draft a formal agreement regarding how the proceeds will be used if one of the partners dies. Typically a portion of the money stays with the business, and some of it is used to purchase the deceased partners stock from the estate, per the terms of a buy-sell agreement.

When you're in the market for business life insurance, it's important to shop around to make sure you are getting the best value for your money. Many different companies offer policies, and you'll find options ranging from cheap term life insurance plans to significantly more expensive whole life insurance policies. When shopping for affordable business life insurance policies, it's a good idea to get quotes from several different companies.

The only way you can be sure that you're getting the best value is to be able to compare a number of alternatives. Don't make your decision solely on price, as there are often significant variations in coverage among policies. While you shouldn't automatically choose the cheapest policy, it's also not advisable to assume that the most expensive policy is your best option. Be certain that you understand exactly what type of coverage you are getting, how long it will be in effect, and under what circumstances the premiums can change or the policy can be cancelled.

 

When you start comparing life insurance, you’ll quickly see that term life insurance is much less expensive in the early years than whole life insurance. While saving money can certainly be beneficial, short term cost saving may not be the only consideration when selecting a life insurance policy. It’s important to keep in mind that there are major differences between term and whole life insurance policies, and it’s these differences that account for the difference in premium costs.

If your primary goal is to get cheap life insurance coverage, a term policy might be the best option for you. Term policies, however, don’t provide lifetime coverage. At the end of the term, the insured person can face premium increases or even loss of coverage. That’s why whole life insurance can be a better value in spite of its higher cost. If you’re looking for life insurance coverage that will provide protection for you and your loved ones for the long term, whole life insurance is preferable to inexpensive term life insurance.

Wondering if you and your business partners need to invest in key person life insurance? While it's fairly common for new small business owners to wonder whether or not the can afford life insurance, it's actually more important to think about whether or not your business venture can afford not to have proper insurance in place. There are several reasons why inexpensive term life insurance should be included in the budget for just about every business.

Replacement Planning

While no one wants to believe that they, or one of their partners, might die, it's a fact that no one lives forever. Many small business owners work without drawing salaries, particularly during the early stages of launching a new business. What will happen if you're partner is no longer with you? No one else will work without pay, so you're likely to have to hire someone to handle that person's part of the work load. Proceeds from a cheap life insurance policy can provide the funds you need to hire someone to help keep the business going.

Stock Repurchase

It’s common for business partners to put buy-sell agreements in place that govern what each owner can and cannot do with his or her stock shares. Typically, these agreements specify what will happen with each partner's shares when he or she passes away. Often, these agreements specify that the corporation will purchase the shares from the individual's estate. This purchase can be made with proceeds from the key person life insurance policy, rather than placing the remaining partners in a difficult financial situation if such protection is not in place.

Family Protection

In many cases, business owners invest a large portion of their personal and retirement savings in getting their businesses up and running. Getting an inexpensive term life insurance policy can be an important step in making sure that family members aren't left penniless or in debt if the entrepreneur passes away before the business becomes successful.

 

When shopping for the best business life insurance, you'll need to understand the difference between term and whole life insurance policies.

Term Life Insurance

When your primary concern is finding a cheap life insurance option, you'll likely want to opt for term life insurance. This is the least expensive type of life insurance, and is often what small business owners choose when purchasing key person coverage. Term life insurance is purchased for a particular period of time, and coverage remains in effect as long as premiums are paid throughout the time. If the policy holder dies while the policy is in effect, the full dollar amount of the policy is paid to the beneficiary in a lump sum. However, once the term of the policy expires, there is no additional coverage or benefit.

Whole Life Insurance

While life insurance is more expensive than term coverage, but offers many additional benefits. Mature, profitable businesses sometimes invest in whole life coverage for partners and key staff members, and many individuals also purchase these types of policies. Whole life insurance policies don't expire at the end of a pre-set period of time. These types of policies have cash value, which means that the policy holder can choose to surrender the policy for cash value per the terms of the agreement. It's also possible to use whole life insurance policies as collateral for loans. Premiums will have to be paid for a certain period of time, and coverage remains in effect throughout the person's life.

 

Return of premium term life insurance can be an excellent choice for people who are looking for low cost life insurance coverage for themselves and their families. With a return of premium term live insurance policy, your coverage will expire at the end of the policy term, as with any term life insurance plan. However, this type of policy has an important benefit that differentiates it from traditional term life insurance.

With a return of premium policy, you won’t lose all the money you’ve paid in if you outlive the policy. At the end of the policy’s term, you’ll receive back the all premiums you’ve paid in whether that's 15, 20 or 30 years. A return of premium policy can be a good middle ground between inexpensive term life insurance and the larger initial outlay for whole life coverage.

 

When you're shopping for life insurance for your business, you'll quickly learn that the amount of coverage you purchase will have a significant impact on the cost of premiums. The more coverage you want, the higher your premium payments are going to be. While the idea of cheap life insurance can be appealing, you certainly don't want to find yourself facing a situation without sufficient coverage to meet your needs. It's important to make sure that you have enough life insurance in place to protect your business in the event that one of the owners or other key person dies, but you certainly don't want to pay more for premiums than is necessary.

To decide how much insurance you need, it's important to think about how the policy proceeds will be used. For example, if you're going to have to hire someone to replace the deceased individual, consider the recruitment and salary expenses you're likely to incur. Further, if you're planning to use insurance money to purchase stock from an individual's estate, you'll want to make sure the policy amount is sufficient to cover the cost of that stock, whether it's based on fair market value or a pre-set amount specified in the terms of the buy-sell agreement. Each company's needs are unique, and it's important to give serious thought to exactly how much life insurance you really need before making a final decision.

Back to Life Insurance Tips Center