Why Entrepreneurs Need Life Insurance
Posted by Pierre de la Fortune on July 08, 2015 @ 12:01 a.m.
Written by PremiumShare
The main reason for an entrepreneur to have life insurance is to lessen the economic burden of the company in the event of their death. If the company has a guaranteed business loan, it’s likely the lender will call the loan at the time of the owner’s death leaving the successors without working capital.
A business owner has the obligation to protect their company and provide a means for it to survive. They should have enough life insurance to cover the company debt, replace lost income for the company as well as their family.
According to Karen Price Mueller’s October 2010 Entrepreneur article, “Life Insurance: What to Consider as a Business Owner,” the following are key factors an entrepreneur should consider when purchasing a life insurance policy for their business:
Type of Life Insurance:
There are two types of life insurance to consider — term and permanent.
Term life insurance is the most basic and affordable. Premiums are paid based upon the age and health conditions of the individual purchasing the coverage. There is no cash build up in term life policies and they only provide protection for a specific period of time such as 1 to 30 years as defined in the policy (i.e., the term). This type of life insurance provides coverage for temporary needs such as income replacement and can be considered “renting” coverage versus owning it.
Permanent life insurance is more expensive and provides lifelong protection. There is no expiration date (i.e., whole life). The policy can build cash value without premiums increasing. This type of coverage is flexible allowing individuals to borrow against any paid premiums in a tax-favorable way. Permanent insurance can be considered “owning” coverage and providing inheritance protection. There are various types of permanent insurance.
Amount of Life Insurance Needed:
This will depend on the type of business and creditors. Additionally, according to Mueller, “it is important to determine the expected income over your lifetime, debts and future expenses and the general structure of your business.” In most cases, a spouse may not want to continue in the business. It is important to have a life insurance policy and agreement in place for the surviving partner to buy out the family of the deceased.
Policy Ownership and Beneficiary:
The ownership of the life insurance policy and beneficiary are important considerations when purchasing coverage. If the business is the beneficiary, than it could be subject to creditors of the company or taxation. If an individual, spouse or partner is the beneficiary, than they will have more flexibility in using it to maintain the business or to buy-out a partner’s spouse/family.
If a business owner is considering term life insurance, then purchasing it on-line can make sense. For permanent insurance, a business owner will need more direction and assistance through a life insurance agent or broker. However, the business owner should request various quotes for comparison purposes; ask the broker why they are showing a particular product(s); and request they provide the commission they will receive for the coverage they are proposing.
PremiumShare is a on-line, consumer-friendly life insurance placement company. Once you determine the coverage amount, type and life insurance carrier you want, we will work to obtain the best possible offer based upon your situation. Then, we will donate 20% of the first year’s annual premium to a charity or non-profit organization of your choice! For more info please visit: http://premiumshare.com/blog/why-entrepreneurs-need-life-insurance/
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