Life Insurance for Business Owners – Policy Options
Quick Summary: Finding affordable life insurance for business owners is easier than you may think. We recommend that business owners secure both personal and business life insurance in order to protect their family and their business in the event of their death.There are many types of business insurance options out there.
Companies with company cars, for example, will need car insurance coverage. Companies might need health insurance for their employees. Companies might also need liability insurance or insurance for their office property and machinery/equipment.
As a business owner, you might need to investigate life insurance policies so that your partnership has a level of protection in the event that one of you passes away. You might also need insurance for your employees as part of their benefits package.
This article will cover everything you need to know about business owner life insurance. Here is a brief outline of what you will learn in this article:
What you will learn in this article (click to go to section):
- What Does Life Insurance for Business Owners Cover?
- Why Do Business Owners Need Business Life Insurance?
- Types of Life Insurance Policies for Business Owners
- Why Do Business Owners Need Personal Life Insurance?
- Types of Personal Life Insurance Policies for Business Owners
- How Much Does Life Insurance for Business Owners Cost?
- Tips for Getting the Best Life Insurance Rates for Business Owners
- How to Find the Best Life Insurance for Business Owners
What Does Life Insurance for Business Owners Cover?
As a business owner, life insurance can be an integral form of financial protection for you and your business.
Life insurance for business owners helps to protect you and your company in the event that something unexpected happens with:
- A business partnership agreement
- A business insurance policy
- A buy-sell agreement
- A corporate-owned life insurance policy
In order to deal with these various situations in business, there are many types of policies for business owners.
Why Do Business Owners Need Business Life Insurance?
As a business owner, even of a small company, life insurance is more or less a necessity for various financial reasons.
Protecting Your Family From Inheriting Your Company’s Debts
First of all, your company is essentially a living breathing thing. It has its own processes, employees, managers, clients, accounts, social security number, and many more things attached to it that make it a dynamic and everchanging financial responsibility.
When a business owner dies, this financial responsibility lives on regardless.
If not properly planned for, the remaining debts, obligations, legal contracts and other financial responsibilities attached to your business can become the burden of your family. They are not just responsible for your debts, but your company’s debts.
Planning For Your Business After Your Life
Chances are, if you are a business owner, your company and its continued growth is a high priority of yours. The saying goes that a business is your baby, and for many business owners, this is true.
Getting life insurance as a business owner allows you to protect your business, it’s assets, stakeholders, partners, and your employees in the event of your death.
In order to make sure that your business is dealt with properly by your partners or beneficiaries in the event of your death, life insurance for business owners is very important.
As you will read further in this article, life insurance for business owners can be used in specific ways to protect each of these people in the event of your unexpected death.
Types of Life Insurance Policies for Business Owners
Key Person Life Insurance
This type of life insurance is designed to protect your business even in the event of your death if you are a manager, CEO, owner, or another key person necessary for the function and success of your business.
Key person life insurance can be taken out by a business in order to cover any number of people in the company to fit this description.
This type of policy establishes the company as the beneficiary, who will receive the death benefit in the event of a key person’s death.
What is Key Person Life Insurance Used For?
- Covering the costs of finding and hiring a replacement
- Covering losses to the business in the event of the death of a key person
- Covering debts in the event that the company shuts down
- Covering severance pay of a key person
Using Life Insurance for Buy-Sell Agreements
In this case, business owners can use life insurance as a way to hedge against financial risk in the case of a buy-sell agreement being instated.
When a buy-sell agreement is established between business partners, one or more partners buys the portion of the company back from the sellers.
Life insurance for business owners allows them to set up buy-sell agreements with their remaining partners in the event of their death.
This way, you can use life insurance for business owners to pass your remaining stake in your business on to your partners or a named beneficiary in the event of your death, without having to worry about your company dealing with the legal implications in the event of your death without a set plan in place.
The way it works is that when you die, your life insurance policy death benefit is used to purchase your stake of the company within your estate, and names your business partner as the beneficiary.
What Types of Life Insurance Buy-Sell Agreements Are There?
Cross Purchasing Agreement
In this type of policy, each partner purchases a life insurance policy on the other one, so that in the event of one’s death, the other receives their stake ownership of the company.
Entity Purchase Plan
This type of life insurance policy for business owners allows for the company itself to purchase policies on each of the partners, which is paid for with company dollars and pays out each remaining partner an equal sum of money which can be used to purchase back the deceased partners stake in the company.
Why Do Business Owners Need Personal Life Insurance?
Business owners also have a need for personal life insurance like anyone else. Largely, life insurance policies for business owners cover things strictly involved with their business.
Outside of that, business owners may have the need for life insurance in order to cover things like:
- Income replacement
- Remaining mortgage, credit card debt, and other outstanding debt
- Retirement planning
- Estate and trust building
- Leaving a legacy for your children or grandchildren
Depending on the type of life insurance policy and the company you choose you will have different rates, and you will also have different policy options.
Types of Personal Life Insurance Policies for Business Owners
Term Life Insurance for Business Owners
Term life insurance is a type of life insurance policy for business owners that has an expiration date. Term policies are often offered in 10, 15, 20, 25, and 30-year terms.
During this term, business owners can protect their family and assets with a policy that pays out the face amount of their death benefit to their beneficiary in the event of their death.
Which Business Owners Should Consider Term Life Insurance?
Term is the best type of life insurance for business owners who are looking for personal protection for their family in the event of their death. Their policy will provide income replacement to their family in the event of their death as well as pay off their existing debts.
Pros and Cons of Term Life Insurance for Business Owners
| Pros | Cons |
|---|---|
| Most affordable life insurance coverage for business owners | Not as many policy options as permanent life insurance for business owners |
| Good options for protecting your family | No cash value accumulation over time |
| Convertible into permanent life insurance later | Not coverage for your whole life |
| Multiple policies can be layered to provide more protection later in life | Rates may increase when you go to renew or convert your policy |
Permanent Life Insurance for Business Owners
Permanent life insurance for business owners provides life insurance coverage that lasts for their whole life or until they reach the policy maximum age (usually 95, 101, or 121).
This type of life insurance for entrepreneurs allows them to accumulate cash value over time. Many types of permanent life insurance exist, each of which is differentiated primarily by the unique way they accumulate cash value over time.
This cash value can be borrowed against on a tax-free basis, which can be a powerful investment tool for business owners.
Which Business Owners Should Consider Permanent Life Insurance?
Permanent life insurance is best for business owners who are looking to create an estate or trust for their beneficiaries in the event of their death. This type of policy is also good for business owners who want life insurance coverage for their entire life. For those who can afford the higher premiums, permanent life insurance is a good option for you.
Guaranteed Universal Life Insurance
GUL policies are sort of a blend between term and permanent and not everyone knows about them. You get the permanent aspect that keeps coverage in place until up to age 121 but without the high cost of whole life.
Guaranteed universal policies don’t include cash accumulation or any investment component. They are pure death protection and therefore are less expensive than traditional whole life.
No Exam Life Insurance for Business Owners
No exam life insurance is life insurance that is offered to people without the need for a medical exam to secure life insurance.
Today you can find top companies offering no exam coverage up to $500,000 and sometimes even higher. No exam life insurance for business owners is designed to offer fast and affordable life insurance coverage.
Which Business Owners Should Consider No Exam Life Insurance?
Business owners who have an immediate need for coverage, who do not want to take medical examinations, or who have a health condition that would otherwise prevent them from securing life insurance coverage should consider no exam life insurance coverage.
Pros and Cons of No Exam Life Insurance for Business Owners
| Pros | Cons |
|---|---|
| Life insurance coverage for business owners in less than 24 hours | May be more expensive in terms of cost per thousand dollars of coverage |
| Affordable life insurance for business owners with health conditions | Not a lot of policy options |
| Not a lot of policy riders | |
| Only offers business owners lower face value life insurance policies |
How Much Does Life Insurance For Business Owners Cost?
Because of the various types of life insurance for business owners available and their various needs for coverage, the cost of life insurance for business owners can be tough to estimate for your specific situation without more details.
For life insurance policies for entrepreneurs such as Key Person Life Insurance or Life Insurance for Buy-Sell Agreements, we advise speaking with an expert who can help understand your situation and business plans in order to help you find the best life insurance for your company.
Our independent life insurance agents represent dozens of the best life insurance companies for business owners on the market. We have the experience and the resources to help you find the best life insurance coverage for your business and your family.
When it comes to finding the best personal life insurance for business owners, our agents also have lots of experience and work with multiple life insurance companies in order to secure you the best life insurance rates and policies to protect your loved ones (like, for example, Protective Life Insurance).
Sample Personal Life Insurance Rates for Business Owners
The table below shows permanent and term life insurance rates for business owners. The people represented in this table are in preferred health. Male and female rates are displayed in monthly premiums.
| Age | Policy Type | $100,000 Male | $100,000 Female | $500,000 Male | $500,000 Female | $1,000,000 Male | $1,000,000 Female |
|---|---|---|---|---|---|---|---|
| 40 | 10 Year Term | $8 | $8 | $19 | $17 | $30 | $28 |
| 40 | 20 Year Term | $11 | $10 | $31 | $27 | $58 | $47 |
| 40 | 30 Year Term | $19 | $16 | $58 | $45 | $108 | $85 |
| 40 | Whole Life | $88 | $80 | $248 | $216 | $464 | $376 |
| 45 | 10 Year Term | $11 | $10 | $30 | $26 | $50 | $44 |
| 45 | 20 Year Term | $17 | $14 | $52 | $41 | $95 | $75 |
| 45 | 30 Year Term | $26 | $21 | $89 | $68 | $171 | $130 |
| 45 | Whole Life | $136 | $112 | $416 | $328 | $760 | $600 |
| 50 | 10 Year Term | $15 | $13 | $46 | $37 | $83 | $67 |
| 50 | 20 Year Term | $24 | $19 | $82 | $61 | $155 | $112 |
| 50 | 30 Year Term | $41 | $31 | $140 | $107 | $270 | $206 |
| 50 | Whole Life | $209 | $165 | $682 | $484 | $1,287 | $902 |
| 55 | 10 Year Term | $20 | $18 | $76 | $55 | $141 | $101 |
| 55 | 20 Year Term | $36 | $27 | $133 | $97 | $255 | $181 |
| 55 | 30 Year Term | $73 | $57 | $271 | $194 | $534 | $381 |
| 55 | Whole Life | $297 | $231 | $1,089 | $715 | $2,057 | $1,331 |
| 60 | 10 Year Term | $32 | $25 | $122 | $83 | $226 | $151 |
| 60 | 20 Year Term | $60 | $41 | $235 | $158 | $456 | $304 |
| 60 | Whole Life | $384 | $300 | $1,464 | $996 | $2,712 | $1,812 |
| 65 | 10 Year Term | $57 | $37 | $220 | $136 | $409 | $254 |
| 65 | 20 Year Term | $108 | $72 | $457 | $298 | $865 | $556 |
| 70 | 10 Year Term | $96 | $63 | $373 | $241 | $705 | $445 |
| 70 | 20 Year Term | $207 | $172 | $848 | $682 | $1,694 | $1,363 |
| 75 | 10 Year Term | $161 | $112 | $675 | $460 | $1,259 | $885 |
| 75 | 20 Year Term | $280 | $215 | $1,254 | $871 | $2,487 | $1,659 |
Life insurance rates for business owners will vary based on:
- Health
- Age
- Family health history
- Occupation
- Lifestyle
There are other factors that influence the cost of life insurance for entrepreneurs, but these are the main factors that have the largest impact.
Tips for Getting the Best Life Insurance Rates for Business Owners
It is best for you to purchase the business life insurance long before it becomes a real need. If you purchase before you truly need it, chances are you will be healthier and more financially stable.
Purchase Life Insurance Young
Purchasing life insurance at a young age can make a huge difference for business owners. Many life insurance policies also have the option to review your coverage once your term expires without having to undergo another medical exam.
This is one of the best facets for a policy you are considering because it means that you can get your premiums set up based on being a young, healthy person, without having to get re-evaluated later if things change.
You might have a period of being unhealthy or find out that you have a bad chronic condition, but if no new exam is required, your policy and premiums will not change.
Purchase Life Insurance While You Are Healthy
With health conditions, life insurance rates increase in order to make up for the increased risk associated with your policy. So, if you are young now without any chronic health conditions or issues, you can get affordable life insurance for business owners.
Maintain Your Health Throughout Your Policy
Even once you have purchased a life insurance policy, you can still save money on the premiums.
Just because you were once considered unhealthy and placed in a lower health classification does not mean you are forced to stay there. You can request that your policy is re-evaluated once you go through another physical exam to prove that a chronic condition has been fixed.
People who are smokers, for example, might be able to change their plans for better coverage or lower costs in exchange for quitting.
People who have something like bad cholesterol or high blood pressure can try for the same once those issues have been rectified. If you had a bad health condition when you purchased your plan, you can always ask to get re-evaluated later. This might drop your costs while still giving you the coverage you need.
How to Find the Best Life Insurance for Business Owners
Finding the best life insurance coverage for business owners is as easy as you feel like making it. Many resources exist which can be used to estimate life insurance rates.
In order to find the best policy and rates for you, it is recommended to work with an independent life insurance agent. Especially when it comes to insuring businesses, you want to be sure that you have all the information necessary to make the best decision.
Give us a call today to speak with an expert who can compare life insurance policies and rates for entrepreneurs to help you find the best business life insurance and personal life insurance for business owners quickly and easily.
