In 2020, only 54% of Americans were covered by a life insurance policy. This means many are still asking themselves the question, “Do I need life insurance?”
But life insurance isn’t just about protecting your family in the event of your death. Should something happen to you, can your business partner handle the business? Can business owners get life insurance too?
Of course, business owners can get life insurance! Life insurance for business owners financially protects your family, business, business partners, and employees.
So, let’s dive into five things you should know about life insurance for business owners.
1. Earns Cash Value
Over time cash value builds on the insurance policy. It earns interest and dividends yearly. The insurance company pays this back to the company.
If business fees come about, the business can use a policy loan to cover those expenses. Then, the money goes back to the insurance company. This makes funds available again for future business costs.
Traditional business loans have high-interest rates. But with a life insurance policy, businesses can finance costs in a way that allows them to retain interest costs. It’s great for storing capital.
Plus, life insurance policies are more affordable than one would imagine.
2. Provides a Succession Plan
Many businesses don’t plan for the time when a partner or owner will die. But when this happens, the business may not be able to continue financing itself with no plan in place.
Sometimes, the other members need to buy out the member who died to keep the business going.
But, a buy-sell agreement gives businesses an exit strategy. Each business owner has a policy. So, when one passes, the others can use the death benefit to buy out the owner who died.
These policies aren’t only for death. They also work when a business owner leaves the business because of:
3. Protects the Employee Knowledge
Most employees won’t stay at one company their entire working career. But a life insurance policy can help businesses when a key employee leaves. This is the key person policy.
These policies help finance business costs and liabilities.
Additionally, the death benefits are similar to those of the business owner in the succession plan.
4. Attracts and Retains Employees
Businesses can use their life insurance policy to open life insurance policies on their employees. If any insured employee leaves the company, the business owner can transfer ownership of the policy to the employee.
Rather than matching a 401k plan, the business owner receives benefits for paying the insurance premium. As mentioned, the business can also increase cash flow with the employees’ policies.
5. Offers Tax Benefits
Life insurance for business owners has two tax benefits. One is while the owner is alive. As mentioned, these policies incur interest and dividends.
The other is after the owner has died. These are the death benefits. With financial planning, policy owners can pass on wealth tax-free.
The Paradigm Life MEC insurance is just one example of a financial tool businesses can use to reap tax benefits.
Get Life Insurance for Business Owners
With these five tips, we covered different types of life insurance for business owners. The benefits your business can reap from having life insurance are worth the investment.
If you still have questions like “How to get life insurance?” then make sure to check out the rest of the blog for more related information.