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Steps to safeguard your personal and professional future
By James Anderson
As your business grows, you may find yourself at some point balancing two different priorities: Protecting the income and lifestyle of your family, and ensuring that your business will run successfully for years to come. Life insurance can be an important safeguard to have in place to protect both priorities.
Providing for your family if something happens to you and keeping your business afloat during critical and often sudden changes in personnel, hinges on one thing: capital.
“It sometimes helps small business owners to look at life insurance in terms of a constant set of issues and both temporary and permanent solutions to address them,” says Marv H. Feldman, president and CEO of Life Happens, an organization that educates consumers about life insurance. “Your constant is that you want to protect both your business and your family.”
In practical terms, you need money to support your family in the case of a loss of income, or to keep your business operating should something happen to you or key partners and employees. Here are some ways that life insurance can bridge those gaps.
Individual Life Insurance Policies. Plans to protect your family start with an individual life insurance policy set up with your spouse and children as beneficiaries. Terms can be set to ensure that your loved ones do not have to experience a drastic change in their lifestyle if you were to pass away. A term insurance policy will cover you for a specific period of time, such as 20 years. A permanent policy costs more and will cover you for life.
Buy-Sell Agreements. There are several ways business partners or associates can protect one another with life insurance. One strategy is to first set up a buy-sell agreement, a contract that sets out terms for either partner to purchase the other’s share of the business should that other partner leave the company. Qualifying events can include retirement, death, or a disability. Buy-sell agreements are frequently anchored on two things. The first is a predetermined price that remaining or surviving owners will pay a departing partner or his or her surviving family. The second piece is a life insurance policy that names the remaining company owners as recipients of a payout that will be used to “buy out” the stake of the partner who passed away.
Key-Employee Coverage. Another way to protect your business is through key-employee coverage, life insurance taken out to help your company survive the death of an important manager or employee. Key-employee coverage often names your company as a beneficiary and can provide money to make up for lost sales and profits as well as the cost of searching and training someone new to take up the position.
Life Insurance as an Employee Benefit. It’s also possible to use life insurance as a perk or benefit by setting up either group coverage or special-incentive plans for managers. Group plans help you recruit talent in competitive job markets. It’s also possible for your company to pay part of the cost of a permanent life policy as a way to compensate or reward a special employee or executive.
Finding a Policy That Fits
When it comes to shopping for policies, there are a couple of considerations to keep in mind. First, sooner is better. Life insurance premiums, or the amount you pay for coverage, are typically lower the younger you are.
Secondly, there’s an advantage to working with one insurance carrier to set up multiple policies. Paul Beckis, a sales support manager with American Family Insurance, says if you need multiple policies, setting them up with the same insurer will not only streamline the process and simplify and speed underwriting, but may help you cover your needs more comprehensively. “If your carrier knows the bigger picture for how the policies will be used, they’ll be better positioned to find and design the right coverage for the situation,” Beckis says.
One final thing to remember: your needs may change over time. Check in with your insurance agent annually to make sure your coverage makes sense given your company’s size, strength, and growth, Feldman advises. It’s never too early to think about your company’s longevity. By taking a little time to decide on the right life insurance policy today, you can financially protect your family and your business for years to come.
James Anderson is an English professor for the City University of New York as well as a writer with over 25 years of experience in the fields of finance and business.
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