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Why Small Business Owners Need Life Insurance

Alexa Goyette

Set a plan in advance to keep your business safe. That's where life insurance comes in.

As a business owner, you've put years of hard work into your company. It's part of who you are. If something happens to you, you don't want the business to crumble.

The death of an uninsured business owner can create a domino effect. Without life insurance, a death can put a financial strain on many people:

  • Family
  • Employees
  • Business partners

Business owner life insurance options

Policy type Who is it for? What it can cover
Personal life insurance Anyone with financial obligations
  • Can cover business loans/debts
  • Can cover dependents' current and future expenses
Life insurance to fund a buy-sell agreement Businesses with multiple partners/owners
  • Can supply funds for the buyout of a share of the business
Key person life insurance Businesses that have employees with specialized skills
  • Covers financial setbacks a business can face after losing a critical employee

Types of life insurance for business owners

Personal life insurance

A personal life insurance policy can give your family an important financial safety net, including business loans and debt that your family is responsible for. Non-business obligations that can be covered include:

  • "Income replacement" if your family relies on your income
  • Mortgage payments on a house
  • Future college expenses for children

Life insurance to fund a buy-sell agreement

A buy-sell agreement allows business partners to buy out your share of the business. It can help make a smooth business transition if a partner dies.

Key person life insurance

If an employee's expertise or experience helps drive the business, key person life insurance can be a good option. It can compensate the business for financial setbacks faced after losing a crucial person.