Why do you need life insurance coverage as a business owner? What are the benefits of having life insurance policy as an entrepreneur? Well, this article will answer your questions in details.

To some business owners, the idea of buying a life insurance policy is bullshit. They see no reason why they should do that, especially when there are myriads of investment options around that can help “multiply” their money over time. As a business owner, you need life insurance, for a good number of reasons.

Have you ever thought of what would happen to your business if something bad happens to you? I know that no one likes to think about this, most people would rather focus on the positive side of things and not think about the bad stuffs like death, illnesses and paralysis.

Well, it’s a good thing to always stay positive but every smart business man must always think about both the positive and the negative side of things. This is why when you want to start a business, you are always asked to do a SWOT analysis which is an analysis of the strengths, WEAKNESSES, opportunities and THREATS of the business. This is because nothing is certain and there are always two sides to a thing; the good and the bad side.

As a smart business owner, have you ever thought of what would happen to you, your business and your family if an unfortunate occurrence happens? Would that automatically mean the end of your business and all you have spent your entire life building? Would your dependents have to suffer? These are the things that a life insurance policy helps to guard against. When you insure your life, your business and family become protected long after you are gone and your business continues to exist and grow.

Here are 10 good reasons why you should consider buying a life insurance policy, but first let’s take a look at two of the popular types of life insurance policies that we have:

Types of Life Insurance

  • Permanent life insurance-: Permanent life insurance combines two benefits; savings and death benefits. You can borrow money against the savings portion of the insured sum to meet certain financial goals in the future while the other portion is paid to your beneficiaries upon death.
  • Term life insurance-: When you opt for term life insurance, your beneficiaries are paid a certain amount of money over a selected period of time. However, this payment is just for a short agreed period of time unlike the permanent life insurance and also, you cannot borrow money against the savings portion of your loan.

10 Reasons Why Business Owners Need Life Insurance Coverage

1. Sudden illnesses and diseases-: You also need to protect yourself against sudden illnesses and diseases which might make it impossible for you to run your business yourself. Diseases like cancer, stroke and paralysis have crippled several people’s businesses in the past.

2. Preserve your life achievements-: Your business is a going concern, it is something you worked so hard to put together and when you are gone, it is one of the things you would want to be remembered for. It is one of the things that would immortalize you, therefore, you need to organize your business in such a way that when you are gone, the business would continue to run successfully. One of the tools to achieve that is insurance.

3. Loss of key employees-: Almost every business has such employees; employees who are like the backbone of your business and possess special knowledge and skills so much that, it would be difficult and expensive to replace them. A life insurance policy would make it easier to replace and train new staff for the position and cushion any negative effects that may be brought about by the loss of such employee.

4. Guaranteed growth of your money every year-: With life insurance, your account will grow every year, regardless of what the market does. This growth is compound tax-free, and it’s quite different from the “average rate of return” that you get with mutual funds. And let’s face it, you can never create real wealth from the two percent to four percent interest range that you will get from mutual funds in our current low-interest-rate environment.

5. Dividends paid to policy owners are not taxable-: Although there’s no guarantee that you will get dividends or not; but many insurance companies have been in business for so many years that they are able to pay dividends every year. The amount of dividend paid varies, depending on a wide range of factors, but it depends majorly on how much profit the insurance company made. When dividends are properly paid to insurance policy owners, those dividends are not taxable.

6. You get cash when you need it-: Now, there are times that you would have some smart business ideas or quick business opportunities but lack the necessary funds to carry it out. Research has revealed that more than half of small business owners who attempt to get credit from traditional lending sources fail to get the funds they need—even if it’s a short term loan.

Sometimes, all you need is a very-short-term loan to cover expenses while waiting for a client to pay or to purchase supplies that will pay for themselves over time. This is where life insurance becomes extremely helpful because you can easily use your savings as collateral security for borrowing funds to finance such businesses.

With a good life insurance policy, you can take out money when you need it. Like I mentioned earlier, permanent life insurance has two portions; the savings portion and the insurance portions.  However, you must exercise caution and avoid borrowing money against your savings except when you are very sure that it is a viable investment that would yield enough profit to repay your loan and even leave you with something extra.

7. Life insurance can cover business expenses-: Your life insurance policy can act just like a leasing company, loaning against your cash values to cover certain business expenses (such as purchase of office equipment). And you pay yourself back later much like a lease type option. Interestingly, your cash values will continue to grow as if you never touched it. And since the money is non-taxable, your expenses go back into paying the policy.

8. You get guaranteed insurance-:Once you have your life insurance policy in place, your insurance is guaranteed for the rest of your life. Most people often think they can buy new insurance anytime in the future. But that’s an illusion, and nothing is further from the truth. Who knows when he or she could be diagnosed with a chronic or terminal disease? If you become chronically ill, buying a policy at that time is almost impossible.

9. Life insurance have high starting cash value amount-: Properly designed life insurance policies have high cash value percentages, even in their first year, and they increase every year. To you, this might not seem important until you realize that access to your cash will help you grow your wealth systematically regardless of the state of the market or economy.

10. Life insurance guarantees protection for your business-: Nothing is certain in business, anything can happen, a key staff may resign, a very strong competitor may frustrate you out of business, some government policies might come up that you wouldn’t be able to meet up with but this doesn’t have to cripple you financially as long as you have life insurance in place. When you have such insurance in place, you can easily bounce back from any crippling experience because you would have the funds needed to reposition your business.

Life insurance can protect your business from financial loss, liabilities, or instability in the case of the death of a business owner or partner. Life insurance can be invaluable in the maintenance of the business you have worked so hard to build; whether by providing short-term cash or keeping operations going during turbulent times until things settle. Life insurance is the reason why many businesses have survived for decades.

11. Even your loved ones are protected-: If you have children or family dependent on you, then you really have to get a life insurance policy. One of the reasons you work so hard in your life is to be able to take care of and provide for those you love—your spouse, children, relatives, partners, and so on. But do you ever sit down to consider providing future living costs for these people in case you die unexpectedly? No doubt, they will have to go on with life without you, but you should make that easier for them with a life insurance policy.

You wouldn’t want a situation whereby your kids have to drop out of school because there are no funds to pay their school fees or your family has to be kicked out from the house because there’s no one to pay the mortgage. There have been so many sad stories of millionaires whose children couldn’t attend college years after their death. Things like this happen when people don’t prepare adequately for when they will be gone and unfortunately, the family they left behind would be the one to suffer for it.

12. Life insurance pays off your debts-: Every business needs financing and a large percentage of people finance their businesses on loan and these loans may threaten the existence of their businesses especially if they are unable to repay such debts. Debts do not have to cripple your business because you could get a life insurance policy that you could use to offset such debts.

I bet you also don’t want to leave a huge mountain of debt for your dependents after you are gone. The emotional toll your absence alone would take on them would be enough burden for a long time. And you don’t want to compound their woes with financial burden. Life insurance can help them cover your debts after your death.

13. Buy-Sell Agreement Funding-: Life insurance policies can also be used to fund buy-sell agreements. If you have a business partner, both of you could get life insurance policies so that in the event that either one of you dies, the proceeds received from the insurance can be given to the family of the deceased partner as his own interest in the business. This way, the loss of a partner would not cripple the business.

14. You will have peace of mind-: Granted, no amount of money can ever replace the value of an individual. But life insurance can give you some personal sense of fulfillment and protection. Being confident that you will be able to face any uncertainty that hits you is bliss in itself.

Ajaero Tony Martins