Life insurance, built around the business
Personal life insurance protects a family. Business life insurance protects the company: its loans, its ownership and the people it can’t easily replace. The same kinds of policies, such as term life, are used in different ways for different business problems.
- Key person insurance
- The business owns a policy on an owner or employee whose skills, relationships or sales the company really depends on. If that person dies, the benefit helps the business cover the gap while it recovers or hires.
- Buy-sell funding
- Owners agree in advance how a co-owner’s share is bought out after a death. Life insurance can provide the money, so the surviving owners aren’t forced to find it, or to take on a new partner, under pressure.
- Loan and debt protection
- A lender, or the business, may want coverage that can help pay off a loan or line of credit if the person guaranteeing it dies, so debt doesn’t land on a family or sink the company.
- Owner and executive term life
- Term coverage on owners and senior leaders, sized to the obligations and years the business still has ahead of it.
Moments when business owners look at this
- You’re buying a new building. A bigger mortgage and more fixed obligations raise the stakes if an owner is suddenly gone.
- You just took a bigger loan. Lenders often ask about protection on personal guarantees, and you may want it regardless.
- You have more assets to protect. As equipment, inventory and property grow, so does what the business and the owners’ families have riding on it.
- One person holds the business together. A top salesperson, a licensed master, or a founder who holds the key client relationships.
- You have a partner. Without a funded plan, a co-owner’s death can leave you sharing the company with their heirs.
- You’re adding owners or investors. New partners usually mean it’s time to write down what happens if one of you dies.
How it fits with the rest of your coverage
Business life insurance sits alongside the policies that protect the company day to day. Commercial property covers the building and equipment, general liability covers third-party claims and workers’ compensation covers employee injuries. None of them replace the owner or a key employee. That is the gap this coverage addresses.
What to think about before you buy
- Who owns the policy and who is the beneficiary
- For key person coverage the business is usually both. For buy-sell plans the structure depends on how the agreement is written. Ask an agent and your attorney how it should be set up.
- How much coverage
- Often sized to a loan balance, a business valuation, or the revenue a key person brings in. There is no one number that fits every business.
- Term or permanent
- Term lasts a set number of years and is often used to match a loan or a planning window. Permanent coverage costs more and builds cash value. Which suits you depends on your goals.
- Health and underwriting
- Approval and price depend on the age and health of the person insured, which is a good reason to look before you need it.
- Tax and legal treatment
- These arrangements have tax and legal consequences. Talk with your accountant and attorney. We can help you understand the insurance side.
What helps start a conversation
- Business name, ownership structure and number of owners
- Any loans, mortgages or personal guarantees you’d like to protect
- The people the business depends on most, and why
- Any existing buy-sell agreement or life policies
Common questions
Is business life insurance the same as personal life insurance?
The policies are similar. What differs is who owns the policy, who is the beneficiary and the problem it is meant to solve: protecting a business rather than a household.
What is key person insurance?
A policy the business takes out on an owner or employee it depends on. If that person dies, the benefit goes to the business to help it through the loss.
Do I need it if I already have a business loan?
Not always, but many owners consider it when a loan is large or personally guaranteed. Some lenders ask for it. An agent can help you see the options for your situation.
Can I buy it for a partner?
Often yes, through a buy-sell arrangement. Rules depend on the structure, so it’s worth setting up carefully with your attorney.
What decides the cost?
Carriers typically look at the age, health and tobacco use of the person insured, the amount and length of coverage and the type of policy.
Growing? Talk it through with an agent.
New building, bigger loan, a partner coming in: tell us what changed and we’ll talk through whether business life coverage makes sense.