Top Reasons for Purchasing Key Person 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 they 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 your 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 an inexpensive 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.