Starting and running a small business can be exciting especially if it turns out to be a profitable venture. However, it comes with its fair share of risks which is why it makes perfect sense to mitigate them beforehand. One excellent way to do this is by taking out life insurance.
You can use this cover to protect your family, business partners and key employees against the impact of passing away. Besides, life insurance can help your business to attract top talent by guaranteeing the protection of their dependents.
In this post, we discuss three types of life insurance policies available to small business owners. You don’t have to take out all of them. But having at least one in place will boost your business’ chances of survival.
Key person insurance
In some cases, the survival of your business may be dependent on a specific person’s performance or expertise. If you have executives or employees that are vital to your business’s success, you should consider protecting them with the key person insurance.
This policy provides your business with financial support in the form of a death benefit if a valuable employee passes away. Essentially, it aims to help your business overcome any devastating financial effect caused by the passing away of a valuable employee.
Under this kind of policy, you can take out critical illness cover or life cover. The business is responsible for paying the premiums as well as setting up the cover.
A payout is therefore issued to the business when the valuable employee becomes critically ill or passes away. It can then use the proceeds to make for lost earnings or find and train a suitable replacement.
Key person insurance allows small business owners to rest easy knowing that even if a valuable member departs, their businesses can continue operating normally without financial constraints.
Relevant life insurance
Relevant life policy is an efficient way for your business to provide death-in-service benefits to your employees. This plan is popular with small and medium-sized businesses that cannot afford to set up a group life scheme but want to provide benefits to their directors and employees.
A payout is paid to the insured employee’s dependents if the employee passes away or is diagnosed with a terminal illness while still working for the business. This policy is established on a life-of-another basis. What this means is that your business is responsible for setting up the policy and paying the premiums but the payout is given the employees dependents if a risk occurs.
Relevant life policy follows the same type of assessment used for standard life insurance plans. Employees are assessed based on lifestyle factors, amount of cover needed and the state of their health.
This plan offers a way to provide life insurance to your employees without charging them. This is beneficial to both the employer and the employees. Employees rest easy knowing that their dependents are financially secure should the inevitable happen. On the other hand, employers can use this strategy to attract and retain valuable employees.
Business loan protection
Taking out a business loan comes with risks and obligations. A collateral is issued against the loan, usually in the form of business assets to serve as an assurance for payment. In some cases though, the business owner, a key employee or director can secure a business loan.
If such an individual was to pass away before the loan is fully repaid, the business could be exposed to a serious financial strain. This is where business loan protection comes in handy.
This policy protects your business from any financial disruptions caused by the passing away of a business loan guarantor. The business receives a payout to cover any outstanding debt when a key person passes away or becomes critically ill.
In a nutshell, this plan ensures the continuity of your business by providing a way to repay outstanding debts without straining your business finances.
Small businesses stand to gain numerous benefits by purchasing life insurance policies. This cover offers them flexibility, growth and security to the business. A few plans suitable for small business owners include key person insurance to protect your key employees and top executives. There’s also the relevant life insurance to give you the advantage you need to enhance your recruitment process.
How are you safeguarding your company with life insurance? We’d like to hear your feedback in the comments below.