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Even Your Business May Need Life Insurance

By Sanford Ellowitz on March 8th, 2010

You know you need life insurance to provide your family with financial security, but did you know that you might need life insurance for the financial security of your business?

Why Small Businesses Should Consider Life Insurance

Two or three individuals jointly own many businesses--particularly small, family run businesses. If one of the owners should pass away, the heirs may either be unprepared or unwilling to take over the responsibilities of running their share of the company.

It's also possible that most of an owner's net worth is connected to the company. In such a situation, even if the heirs want to keep their share of the business, they may be forced to sell the shares to settle estate taxes or to divide the inheritance among several heirs.

Another possibility to consider--when one business owner passes away, the remaining owners may be faced with the less than ideal prospect of having to share control of the business with new owners.

Buy-Sell Agreements

A buy-sell agreement can provide a solution to these possibilities. An agreement is reached between all of the owners, which stipulates that should any one of them die, the remaining owner or owners have the first right to purchase the others' shares at a preset price.

Fund the Buy-Sell Agreement with Whole Life Insurance

In order to have the funds to do this, whole life insurance policies might be purchased on the life of each owner. The other owners are named as beneficiaries.

When one owner dies, the other partners collect the policy proceeds. The insurance benefit is then used to buy the heirs' share of the business. The heirs get their inheritance and the other owners get to keep control of the small business.

Whole Life Is the Best Way to Fund an Agreement

Because it is not known how long any one of the owners may stay with the business, you should consider a whole life policy, which is meant to provide insurance coverage for a lifetime. A term policy may be the most affordable insurance choice now, but if the term expires and the owners are still active in the business, new policies that are likely to have higher rates would then have to be purchased.

Key Person Insurance

Small businesses are also likely to have one or two individuals who are the driving force behind the company's success. Should that key individual die, life insurance on that person can provide the funds needed to keep the business running until a replacement is found.

Just as with a buy-sell agreement, a whole life policy might be best to ensure that the business always has the funds needed to sustain it. A term policy, unlike a whole life policy, may expire before the needs of the business are met.

Going Online to Get Whole Life Insurance

If you feel your business is vulnerable to either of these situations, speak with a knowledgeable agent. You can get competing whole life insurance quotes and find the best life insurance policy that meets your needs.

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