Life Insurance for Business

Life insurance is an essential business-planning tool. It provides businesses with unique flexibility and adaptability by protecting against loss, and assuring continuity. In this post, we will explore the business marketplace, including basic types of business entities, key employee plans, and the roles of life insurance in business succession and employee retention. This is an important aspect of Life Insurance thus acquiring the necessary knowledge and confidence to prospect, sell, and service life insurance in the ever-expanding business marketplace – Sole Proprietorship, Partnership, Corporation and Limited Liability Company (LLC).

Considerations of Business Insurance

  1. What will happen to the business if the owner or key person suddenly becomes disabled or dies?
  2. What will happen to the owner’s family and the families whose livelihoods are dependent upon the continued success of the business?

All types of insurance fall under the general heading of risk-transference. Specifically, business insurance is a management tool that enables businesses to transfer the risk of a loss to an insurance company. By paying a relatively low premium, a business can protect itself against the possibility of sustaining much higher financial losses. Transferring risk to an insurer is the definition of buying an insurance policy. As an added incentive for businesses, premiums paid for many types of insurance are considered tax-deductible business expenses.

Nearly all businesses recognize the need to insure against certain risks, such as fire, theft, natural disaster, legal liability, accidental injury, and even general health insurance. The death or disability of owners and key employees should also be on that mandatory list, especially for small businesses. Oftentimes, the small-business owner’s entire savings are tied up in the company, so the owner must take steps to protect his or her family from the financial consequences of events that could disrupt operations, reduce profits, or even force the business into bankruptcy.

Insurable Interest and Key Employees

Companies at all levels are considered to have an insurable interest in the life of an employee who is considered key to the success of the business. A key employee is one whose continued business activities can be reasonably expected to have a positive effect on the company’s bottom line. A regional sales manager for a clothing manufacturer who has opened accounts at several major retailers in each of the past four years may be expected to secure and maintain more accounts in the foreseeable future. Replacing that manager in the event of his or her death would put a financial strain on the company. Purchasing insurance on the manager’s life for an amount calculated to relieve that strain would fall under the category of Key Employee coverage.

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