Small Business Life Insurance
Life Insurance For Small Business
Have You Given Any Thought To Small Business Life Insurance?
What Type Of Business Do You Own?
- Is your business a Sole Proprietorship?
- Are you part of a business Partnership?
- Is your business an S Corporation?
- What about a C Corporation? Is this how you incorporated your business?
- Have you taken advantage of the new Limited Liability Company laws?
- How about Key Employees? Do you have any employees that you can categorize them as Key Employees?
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How Small Business Life Insurance Works
as it applies to each type of business is different in many ways but
there are also many similar features in each case as well.
What we are discussing
here is not group life insurance but more specifically life insurance as
it applies to the owners of each business and life insurance for the
Let us take a look at each type of business and how life
insurance could go a long way in protecting the business itself as well
as the heirs of a deceased business owner.
- The Sole Proprietorship
Because the owner of a
and the business itself is considered one and the same one may think
that the need for life insurance is limited. Nothing
could be further from the truth.
We put in a lot of time and effort
building a business that has to be dissolved at our death. We do want to
have this business transferred to a member of the family when we die.
How can this be done?
The estate of the sole proprietor can sell the assets of the
business upon his or her death. A life insurance policy can be bought
during the lifetime of the owner, the proceeds of which would be used to
buy the business.
A buy sell agreement, which would be binding, would
determine the terms and the amount to be paid for the business.
Let us assume the proprietor is married and has a son or daughter
who is interested in taking over the business upon his death.
young person has spent a lot of time learning the intricacies of
operating the business from his or her father.
So dad decides he wants
to transfer this business to this child upon his death. He has a buy
sell agreement drawn up by an attorney that would fulfill his desires.
This agreement is funded buy a small business life insurance policy
specially bought for that purpose.
The proprietors wife is not particularly interested in the
business but if the business owner dies before her she will still need
income. The proprietor dies.
The proceeds of the small business life
insurance policy is used to purchase the business from the estate and
the wife has full value in cash.
She can use this money to purchase an
annuity that would pay her an income for a certain number of years or
for a lifetime. Of course this decision will depend on the amount of
money we are talking about here.
- The Partnership
The use of small business life insurance in a
is very simple and straightforward. The ownership of this partnership
is in the hands of three partners.
For the sake of easy explanation let
us assume that that these partners own equal shares.
buy sell agreement
would be set up that would state that the partnership would buy the
shares of a deceased partner from his heirs. The buy sell agreement
would be binding. The heirs cannot decide they don't want to sell.
partnership would buy a small business life insurance policy on the
lives of each of the partners in the amount of the value of their
The proceeds would be used to fund the purchase. In some cases
the policies can be owned by the partners themselves. The results are
- The Corporations
Small business life insurance for c corporations, s
corporations are limited liability companies is very similar to that of
the partnership. The corporation usually owns the policies on the lives
of the principals.
Upon the death of a stockholder the corporation buys
the stock from the heirs of the deceased. A small business life insurance policy
is the least expensive way to fund the buy sell agreement.
recommended that the insurance is updated on a regular basis and that
the buy sell agreement is reviewed and updated from time to time...as it
For more information on corporations and how to apply small
business life insurance go to:
Limited Liability Companies
- Key Employee Life Insurance
What state would your business be in if a key employee died?
Have you given this any thought? In my 40 years in the life insurance
business I have seen many interesting situations.
Some businesses had no
key employee life insurance on their valuable employees...much to their
detriment. Others were prepared and things continued on smoothly after
the death of the key employee...
It is recommended that if a business has a very valuable key employee that they buy a small business life insurance
policy on the life of that employee equal to about 5 years of that
Upon his or her death the proceeds of the policy is
paid to the business and used to help keep the business going while the
company finds a capable replacement.
Decide how much life insurance your business needs then compare Quality Quotes from Quality Carriers. There is a calculator here that you can use to help determine your needs.
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