Bootstrapping is not easy, but that does not diminish its importance in a business. And while insurance is an essential part of the business, it might even be harder trying to figure out how to handle insurance for the business while at the same time bootstrapping. So you will have to know how to handle your business insurance when bootstrapping to help avoid making a blunder. That said, below are ways on how to do so.
Types Of Life Insurance For Business
Below are some of the options of life insurance you can consider for your business.
Key Person Insurance
All employees cannot be equal, some play larger roles than others and while some can be easily replaced, others are hard to replace. Key person insurance is taken by the owner of the business to protect an important employee of the business. If their contribution is critical to the company, you don’t want to risk your business should they die or leave.
Buy-Sell Agreement
When you sign a buy-sell agreement, it binds you to a contract that requires you to buy life insurance on the life of the other business owners. As such, when one of your business partners dies the surviving partners can buy out the interests without possibly selling the business to afford it. In some cases, the surviving spouses of the deceased partner might want to take over and control the interests even when they lack the skill to do so.
Permanent vs Term Life Insurance
Life insurance is often split into two major parts, term life, and whole life insurance. Term life provides coverage for a specified period of time while whole life insurance provides lifelong coverage. Term life is cheaper than whole life, but the premiums don’t change until the term is over. Whole life insurance premiums are expensive and might change over time. Unlike term life insurance, it accumulates a cash value component that can be used after a certain period of time.
So if you want an affordable option you want to choose term life insurance, but make sure that the coverage you choose is enough to cover your needs. There are also options like return of premium of life insurance that give you back all premiums paid if you don’t die during the term.
Why You Need To Be Covered As A Business Owner
A lot of business owners don’t understand the relationship between life insurance and their businesses. And while it might not make sense why life insurance is important for business owners, below are reasons why you need it if you are a business owner.
Paying Off Business Debts and/or Personal Loans
As a business owner, you can use life insurance proceeds to pay off loans and avoid losing your business to creditors. When things go south for your business, the last thing you want to do is liquidate it to pay off pending debts. It leaves you with nothing but the stress of losing your business, and above all, providing for your family especially if you are the breadwinner. Also, should you die and leave personal debts behind, you don’t want to leave that burden to your loved ones. If you have left the business behind as a legacy, they may risk losing it to the business’s creditors.
Replacing A Hard-To-Fill Position
In business, there is always a key employee, someone who cannot be replaced immediately they are gone. If such an employee exits your company or dies, you might experience huge losses trying to fill the position. This is where life insurance comes in so that when you buy coverage for the key employee, proceeds from the insurance will be used to cover losses you might incur and even help in replacing the employee.
Settling Estate Taxes
After your death, you don’t want to leave your loved ones incapable of paying off pending estate taxes. Even so, you don’t want them to lose the business you left them because they cannot pay the estate taxes. By getting insured, you not only secure the life of the business but also protect your loved ones after you die.
Insurance Is Instrumental
Insurance for business is important, and it is even critical when you are bootstrapping. It might seem challenging but you just need to learn the ropes of how to handle it during such a time.
