27 million. According to a recent poll, that’s the number of entrepreneurs in America. And, if the latest statistical trends hold true, as many as 40% of small business owners may lack the protection of a term life insurance policy.
There are many reasons for this. Some entrepreneurs are simply too busy bootstrapping their businesses to think about protecting their families and their fledgling enterprise. More often, it’s simply because most people don’t think about life insurance until an event happens that brings the future into clear view, making them think about what their families’ lives may be like without them.
Fortunately, unlike many of the decisions that you will face as an entrepreneur, selecting a term life insurance policy is a solution to financial uncertainty that will ease, rather than complicate, your other business choices.
Let us show you some of the factors that go into selecting a life insurance policy as a business owner.
Think About Life Outside Your Business
It might seem like a stretch, but the beginning of your entrepreneurial experience—when the arduous process of creating the business plan has mercifully turned into watching it unfold—is the best time to think about the end of your startup journey.
If you’re like most small business owners, you haven’t even begun to think about what might happen to your business or family after you’re gone. In fact, according to a recent Gallup poll, only 30% of business owners have a clear plan for how their business will be managed and who will run it if they were to suddenly pass away.
That means that their businesses may be vulnerable to a slew of financial risks—ranging from the potential mishandling of debt to a potential loss of business asset value through a forced sale.
A term life policy ensures that your family’s financial security won’t be affected by your startup.
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Here’s how it works:
Know How Term Life Insurance Can Support and Protect Your Business
Securing Startup or Business Expansion Loans
Term life insurance can be used to help you secure startup or growth loans through collateral assignment. Collateral assignment secures a loan in case of the borrower’s death, using the face value of the policy (rather than accrued equity, as is the case with whole life insurance).
Supporting Succession Planning
Cross-purchase buy-sell agreements require each owner to take out a term life insurance policy on their partner, equal to their respective shares of the business. The policy payout upon a partner’s death is used to assure the continuity of business operations during a leadership transition, as well as to make up for any loss of business value or revenues due to an owner’s untimely passing.
Wondering how to pass on family business? Life insurance can be used to equalize an inheritance and successfully implement a business succession plan.
Insuring Key Employees
Key person insurance policies name your business as the beneficiary should a vital employee pass away. A key person isn’t necessarily a member of your company’s leadership: it can be anyone whose role is essential for your company’s continued viability. This type of policy ensures that your business won’t be vulnerable to significant operational issues if you lose a valuable member of staff. Key person insurance provides your company with the funds to hire a employee and recoup any resulting loss of company income that may occur during the search.
These are just some of the ways that a term life insurance policy provides tangible benefits to your business. Although term life insurance can offer an easy solution to many your company’s challenges, it’s important to get all the facts before purchasing a policy.
Now let’s look at how term life insurance can protect a business owner’s family.
If you’re like most small business owners, you haven’t even begun to think about what might happen to your business or family after you’re gone.
Create a Buffer Between Your Family and Unpaid Debt
As an entrepreneur, you’ve had to sacrifice to build your company, and that probably means that you’ve poured at least some of your personal savings into your business, and perhaps used personal loans to finance your company’s growth.
Most business and consumer debt (such as a private student loan) isn’t dischargeable after death. Lenders can attach your assets and sue your estate if your loan balance remains unpaid and your family is unable to keep up with payments. A dip in company revenue or an unforeseen financial event that drains away some of your business assets can mean a diminished standard of living for your family—and possibly enduring debt for your heirs.
Even if your financial assets do cover most of your debt—and can provide for your family for an extended period—you still need to take into account potential upticks in the cost of living in the future. Your cash assets might not sustain the value that you had hoped for over time. The difference between your guesstimate of what your family will need at the time of your passing and what they will actually require will influence their financial future.
A term life policy will amplify the value of your monetary assets, ensuring that your family is insulated from unforeseeable market shifts.
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Know What You Can Do Now
If you don’t have a life insurance policy, you have the opportunity to build your business on a stronger financial foundation with term life insurance. Term life insurance is affordable, perfectly matched to the needs of most business owners, and simple to apply for if you use Quotacy.
Your family’s long-term financial security is tied to the future of your business—leaving their welfare to chance isn’t a choice that you have to make. Let us take the guesswork out of term life insurance protection for you. Use our free life insurance quoting tool to help you find a policy in minutes.
About the writer
Director of Inbound Marketing
Kate is Director of Inbound Marketing working on business strategy, SEO, and writing for QuotacyLife. Kate's gift is explaining complex financial planning and life insurance topics in a simple and direct way to help families become more financially savvy and empower themselves to make wise choices. She works with Quotacy's underwriters to ensure the financial tips shared in her blogs are spot-on and truly helpful to anyone researching the ins and outs of life insurance online. If you would like a topic to be covered in our blog, leave Kate a comment below or connect with her on LinkedIn.