Business Owner: Why Life Insurance Must
Be Part of Your Business Plan
More than likely, your family depends on your business’ income to survive. In addition, most businesses have accrued debt to start-up the business.
Unfortunately, your family members might not be equipped to take over the business if you die. Plus, the business may be difficult to sell with the passing of an owner. This could leave them financially devastated; without income or even in a position to lose their home. Often the small business owner uses their home for collateral for a business loan.
Life Happens, an insurance industry group, explains it this way: “When the family is forced to sell the business quickly, they may have to sell at a discount or during market conditions that make the business less attractive. In other cases, the business may be worth very little without the proprietor or partner.”
For the surviving spouse and family, not to mentions any employees, the loss of the business owner may create a nightmare scenario. Often, the spouse is not prepared to takeover the business. Unfortunately, selling a business after the passing of the owner generally results in a "sharks circling in the water" environment: offers are much less than expected.
Recommended Uses of Life Insurance for a Business Owner
- 1Create a written buy / sell agreement with a key employee to purchase your business in the event of your passing. It is HIGHLY recommended to utilize a life insurance policy to inexpensively fund the agreement and to set a specific "buy / sell" price. This recommendation is used often for many businesses.
- 2Purchase life insurance on yourself as the business owner to adequately protect your spouse/family in the event of your passing. In this manner, it will not be financially devastating to your family if the business does not continue without you as the owner in the picture.
- 3Many times life insurance is less than your phone bill. Yet, properly set up, life insurance may keep your business running and family living in the lifestyle they are accustomed.
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