- Sole Proprietor
You are a
sole proprietor,
you therefore are the business. Nothing happens without your management, supervision and decision making. Everything depends on you. What would happen if you should suddenly die? Because you are the business, your business would have to be liquidated upon your death. There is no more income for your family. Answer this question...would this affect the lifestyle of your
family?
Sufficient life insurance would certainly protect your family in this eventuality. An income, equivalent to what they have become accustomed could be set up for your family. As a sole proprietor...when buying life insurance for small business you are actually buying life insurance to replace the income provided you by this business. Your family can continue enjoying the lifestyle to which they have become accustomed.
- Partnership Or Corporation
Two or more people get together to start a business. Whether the business is a
partnership,
a
C-corporation,
an
S-Corporation
or a
Limited Liability Company,
you will need life insurance.
Each partner or stockholder owns a portion of the business. If one partner or stockholder should die he would naturally want his share of stock to go to his family. The corporation or partnership would buy the deceased partners shares from his heirs...thereby paying full value for the shares. This is possible because a
buy-sell agreement
was carefully prepared before the death of the partner or stockholder.
This agreement is usually funded by
life insurance
...because it is the cheapest way to go. Although you may use either
term insurance or permanent insurance
it is usually more cost effective to use term life insurance. This would ease the burden of having to take capital from the business to fund the agreement. This is a great example which proves that buying life insurance for small business is a wise thing to do.
- Key Employees
Many businesses seem to always have that one employee who stands out. S/he knows the business inside out and s/he puts in more time and effort than any other employee. S/he really enjoys her job. This employee seems to put a lot of profit into the business owners pockets. When considering buying life insurance for small business, it would be wise to think about putting a
policy
on this persons life. Why? These hard working smart people are not easily replaced...if they should suddenly die or become
disabled.
The funds would help the business adjust while the principals search for a replacement. You can use
term insurance
for this situation as well. Some companies use
whole life
and give the employee the
cash value
at retirement to top up his or her
pension.
You could also give this employee an
annuity
as an incentive to keep this employee working for you.
- Group Life Insurance
Group life insurance can be a tremendous incentive for employees of small businesses to remain with the company. When looking at buying life insurance for small business this should not be ignored. This would be considered a perquisite to the employees and would certainly help a small business to keep their employees.
