Life Insurance for Small Business Owners: Supplementing Your Succession Plan

Small business owners, ask yourself this question. What happens to my business if I die? If you’re unsure of your answer, then the first thing you need to consider is developing a succession plan that details the transfer of your business to the next owner. While there are a lot of steps that a business owner can take to protect the next generation of business owners, one of the most important is life insurance.

When it comes to life insurance for small business owners, there are typically four policy types to consider. First, a key person plan. The “key person” insurance policy is purchased by a company on behalf of a key executive (i.e the owner). If the person dies prior the policy, then the company is paid the policy. Another policy type to consider is “group term” insurance. This is a type of insurance where the insurer issues the employer a master contract with coverage extended to employees. Most of the time, this policy is much less expensive compared to individual life insurance.

Whole life insurance, or whole of life insurance, is sometimes also referred to as “straight life” or “ordinary life” insurance. This type of policy is guaranteed to remain in force for the insured’s entire lifetime, provided required minimums are paid, or to the maturity date. Another form of life insurance is universal life insurance. This insurance is permanent with an investment savings element and low premiums, similarly to a term life insurance policy. Most universal life insurance policies contain a flexible premium option. However, some require a single premium (single lump-sum premium) or fixed premium (scheduled fixed premiums).

Life insurance planning is a very small portion of a successful succession plan. The professionals at The Center for Financial, Legal, and Tax Planning are more than knowledgeable with regards to the aspects of a successful succession plan. Please contact us at (618) 997-3436 with any questions.