Insurance Options for Small Business Owners

Most small-business owners would agree that a large part of their success resides in their ability to balance risks and rewards.

Many use insurance to help manage risks, including common policies covering business property, general liability, professional liability and technology/internet liability. When I was a small-business owner, it never occurred to me to think beyond these common policies – mainly because it’s human nature to avoid thinking about things like disability or death, especially while focused on running your business. But you should consider other options.

ARE YOU PREPARED?

The 2019 LIMRA Life Insurance Barometer study showed that only 57% of Americans have life insurance and only 20% have disability insurance. This suggests that many business owners probably don’t have the necessary protections to support their business in the event of sudden disability or death. I can personally relate. In 2012, I owned a business, was blessed with our first child, and was diagnosed with stage IV cancer. Suddenly, my life was turned upside down and I began to think of the insurance policies I had been offered years earlier.

SMART CONSIDERATIONS

In addition to disability insurance, there’s a policy called “key person” insurance. This provides a business with a cash injection, via a death benefit payment, that can be used by the surviving business partners to keep the company financially afloat until a new support model can be identified. If you have partners, a “buy-sell agreement” is recommended. Typically structured as “cross-purchase buy-sell agreements,” each partner buys a life insurance policy on each of the other partners. The death benefit for each policy is generally equal to the respective partners’ agreed-upon shares of the business.

If I had employed this strategy before I got ill, it would’ve provided me with the peace of mind knowing that my family would be financially supported with the equity that I worked so hard to build. My partners would also have been protected, offering them the option to purchase my share of the business from my family at a previously agreed-upon price. As they say, hindsight is 20/20.

My experience has shown me the importance of proper life insurance protection and how the lack of planning could devastate a successful business and the lives of our loved ones. President John F. Kennedy said it best: “The time to repair the roof is when the sun is shining.” This principle rings true for small businesses.