You might be worried about what would happen to your business if something were to happen to you as a small business owner or partner. How would you and your family handle a financial shortfall? What about the health of your employees and their families? What happens when a business has debts that are backed by property like the family home?
Some of these questions have undoubtedly crossed your mind, but before you take a leap of faith, think about these prevalent myths and do a reality check.
If I die, my spouse will be able to oversee the company.
Reality check: In many cases, the spouse does not want to run the business or is incapable of doing so. Small businesses usually depend on the marketing, technical, or management skills of the owner. If you take that away, the business might not succeed.
The company will be purchased by a rival.
Let’s face it: It’s possible that the remaining family members won’t benefit from this. It’s possible that the competition is aiming to steal customers, buy the business for a low price, or acquire inventory and equipment on the cheap.
The company will not suffer any financial consequences from my or my partner’s passing.
Reality check: Typically, each owner of a small company contributes significantly and positively to the company or has a specialized skill that is hard to replicate.
A crucial employee may manage the company.
Reality check: Maybe, but if the worker is truly in charge of the company, he or she might be entitled to pay that corresponds to the greater responsibility of the role. The amount of money needed to keep things functioning can be too much for the business.
This is the time when life insurance is useful. Three crucial ways that life insurance can protect your small business include:
insurance for important employees. This is a life insurance policy that the business purchased and that will be paid to the business in the event that a key employee passes away. Insurance can help cover the costs of finding and training a replacement for a key employee’s death, as well as any lost sales or revenues.
a buy-sell agreement backed by life insurance. As a result, surviving family members are properly and promptly compensated for their share of the company and the remaining business owners are able to purchase a deceased owner’s firm interests at a previously agreed-upon price.
Individual life insurance. Individually held plans can provide your family with additional income to help with debt consolidation, ongoing living expenses, and funding for future needs like retirement or college.
Read about Anne Gongos, a surviving spouse who, after her husband passed away suddenly, relied on life insurance and the proceeds from the sale of their small business. Life insurance could provide small business owners with a financial safety net.
It could seem that the time for life insurance is past if your kids are grown, your house is paid for, and you’re getting ready to retire (or have already!). Perhaps you think Social Security, your assets, and your savings will cover whatever happens next.
In truth, these misconceptions prohibit many empty-nesters and retirees from obtaining or keeping the essential life insurance coverage. Consider your options if you believe any of these four myths.
Myth 1: I don’t need life insurance now that my children are self-sufficient and my mortgage has been paid off.
Maybe, but your spouse would still need to cover living expenses if you passed away today. What if your spouse lived 10, twenty, or even thirty years longer than you? Would your financial objectives allow your spouse to maintain the standard of living you’ve worked so hard to acquire in the absence of life insurance?
Myth 2: By the time I die, I’ll have accumulated enough money to leave something to my children and grandkids.
You might be able to achieve your objective by putting in long hours at work and making wise financial decisions for your family. What happens, then, if you don’t live long enough to reach your financial goals? What if there is a protracted downturn in the economy that hurts your investments? Life insurance may instantly establish an estate, enabling you to support a chosen charity or cause or leave a lasting legacy for future generations.
Myth 3: I used to think I’d need life insurance to assist pay inheritance taxes, but that’s no longer an issue.
Although you are not currently subject to federal estate tax, there is no guarantee that you will never be. Tax laws are always changing. There are numerous more benefits to having a life insurance policy in place later in life, even if they don’t. When you pass away, life insurance can pay for costs like state estate taxes, unpaid debts, probate fees, and funeral arrangements, allowing your loved ones to concentrate on their grief rather than their financial difficulties. Additionally, it can be utilized for business succession or to distribute an inheritance among heirs.
Myth 4: Buying life insurance when I’m older is too expensive.
Although it is true that the price of life insurance rises with age, this does not necessarily mean that you cannot afford it. A 20-year, $500,000 level-term policy for a healthy, non-smoking 55-year-old male, for instance, costs about $1,600 year. A 55-year-old lady in good health will spend about $1,200 a year on expenses. Therefore, if you frequently need coverage, don’t assume you can’t afford it.