Life Insurance: A Wise Decision You Will Make As An Entrepreneur

It’s good to think about life insurance if you have a family, but what about when your business is your family? Entrepreneurs have a legacy to protect and the financial needs of other people to think about – life insurance is often a necessity. Also, if your family supports you in your business ventures, keep in mind they also rely on you in return. So, life insurance will cover your business and family, even if you pass away. Below are some business-specific reasons to consider a life insurance policy.

Most entrepreneurs need additional financing to take their business to the next level. But for that to happen, you must invest some first. If you are an entrepreneur, chances are you will turn to a small business loan to get the funds you need, which means one of the requirements for approval is having a life insurance policy. The U.S. Small Business Administration (SBA) requires life insurance for most entrepreneurs on loans backed by them. Even if you are not interested in such loans, commercial lenders may require life insurance in their internal policies.

A term life insurance policy usually meets the above-described requirement. You can pick a policy that matches or exceeds the life of the loan. It’s just a way to ensure the lender that if you die, your estate can pay back what you owed.  Life insurance can also be used as collateral for a loan. In other words, the lender is not your beneficiary, but rather a collateral assignment is set up – an agreement to pay the balance you owe to the lender first, then the remaining payout goes to the beneficiaries. This approach, however, can only work with a permanent life insurance policy with a cash value large enough to cover the collateral requirement.

Most entrepreneurs want their legacy to continue even after they are gone. Life insurance is one of those smart moves that can keep your business afloat even during difficult transitions. Business partnership agreements may include a life insurance component. Your legal advisor or business partner may advise that you have a large life insurance policy. If you die, your state inherits your share of the business. You can set up co-owners to purchase your share from your family using your life insurance returns. Even if you run your business solo, a life insurance plan will fund operations when your appointed successor takes over the business.

It’s advised that you cover several years’ worth of your contribution to the company. Covering liabilities and debts is important too. Some of the business-related costs include credit debts, lease or mortgage, tax obligations, outstanding loans, and credit debts. These are debts that need to be paid even if the business closes after you die. When there isn’t enough to cover the remaining balance, your family may be responsible to cover it based on your business structure. However, if the business is structured to remain separate from your personal assets, creditors can only go after your business assets.

If you are naming someone your beneficiary, they should be aware of your business debts since he or she may be responsible for them. Based on your situation, life insurance with the right level of coverage can provide valuable security not only for your business but also for your family.  

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