Let’s look at three main areas of insurance and protection planning that are often overlooked by small business owners.
- 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.
- 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 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.
Bradley Ruh
Owner, Financial Adviser