Three Overlooked Protection Risks Plaguing Small Business Owners

Let’s look at three main areas of insurance and protection planning that are often overlooked by small business owners.

  1. 1 Life insurance coverage to cover the debts associated with your business You very well many have some personally owned life insurance to cover the debts associated with your business. For example, a business owner may be required by a bank to have life insurance to cover the debt obligation for the business. This insurance might cover the business and the bank, but not the spouse and family left behind. Following the loss of a business owner, the business will likely need to be sold or the owner’s share bought out if there’s a partner, leaving the surviving spouse with potentially less than adequately replaced earnings coverage.

    By picking up some additional personally owned life insurance, you have peace of mind knowing no matter what happens to you or your business, that your family has the appropriate protection in place to resume the momentum of their lives should something happen.
  2. 2Life insurance coverage to cover the Buy-Sell Agreement for the business Many small business owners have partners in their businesses, and these partners probably don’t want their business to be shared with the spouse of their partner in the event of that partner’s early death. But without the Buy-Sell Agreement in place that says how the business is to be bought back from the deceased partner, there is little protection for the remaining partner(s) in the business. In addition, if the business doesn’t have the cash or cash flow to purchase the deceased owner’s interest, then the business could be in serious trouble.

    Enter life insurance. Life insurance, when cross owned by each business partner, has the advantage of creating upon death, a tax-free death benefit for the surviving partner to not only buy out the interests of the deceased partner, but if structured correctly, have enough left over to keep the business going so as to help in replacing the gaps left by the deceased partner.
  3. 3 Disability InsuranceThis is probably the most overlooked insurance protection for most younger business owners because its out of sight and out of mind. No banking or other institution requires you, as a business owner, to have this coverage. And yet according to the Health Insurance Association of America, Approximately 30% of all people age 35 - 65 will suffer a disability for at least 90 days, and about 1 in 7 can expect to become disabled for 5 years or more. And before you say that you can do your job from a wheelchair, realize that according to the Integrated Benefits Institute that only about 10 percent of long-term disability claims are from injury or accident.

The good news is that Disability Insurance provides a way to kill two birds with one stone -- giving yourself some added insurance protection to cover additional business overhead costs along with lost business revenue in the event of a disability. Its one thing to cover a portion of your own income, but if you are the money-making machine for your business, then you might not have a business to go back to if you aren’t able to continue its operation adequately until you recover from your disabling event.

headshot of Bradley

Bradley Ruh Owner, Financial Adviser

Source: Health Insurance Association of America; The New York Times, February 2000; As published in The JHA Disability Fact Book, 2003 Edition 1. Integrated Benefits Institute, Health and Productivity Benchmarking 2019 (released September 2020), Long-Term Disability, All Employers. Condi- tion-specific results.

This material is for general informational purposes only and was produced by Action Financial Strategies, LLC.

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