How much life insurance do you need as a small business owner?
Benefits of Insurance for Small Business Owners
Operating a small business is challenging at the best of times, and many small business owners make financial and health risks without considering how their businesses will be affected if things don’t go exactly as planned. The global pandemic is an example of an unexpected event that has had devastating impacts on many small businesses, with mandated closures and restrictions limiting earning potential over the last two years.
Life Insurance is Crucial for Small Business Owners
Small business owners are typically single operators who may have one or two key employees. Limited staff numbers mean that if any of those employees get sick or injured, it can seriously harm the long-term prospects of the business. Small business owners aren’t only concerned with the survival of their businesses—they want them to thrive! To reduce risk and bring peace of mind to stakeholders, all small business owners should have life Insurance, Disability Insurance, and Critical Illness Insurance.
Life insurance for small business owners allows for the repayment of any debts the business holds and mitigates overall financial risk. It also provides the surviving family members with continual cash flow—regardless of the long-term success of the business.
How Much Insurance Does a Small Business Owner Need?
How much insurance a small business owner needs is primarily dependent on the amount of debt that the business carries. Debt is a financial liability that may include lines of credit, loans, inventory capital costs, leasing obligations, invested capital, anticipated taxes owed, capital gains, and employee salaries, among others.
A unique consideration for small business owners is the potential loss of their income in the event of their premature death—and how that will impact their loved ones. Their financial loss could include potential future earnings as well as anticipated contributions to RSP and TFSA accounts. Consideration should also be given to mortgage debt on a principal residence or other investment properties.
There are many variables that contribute to the type of insurance a small business owner needs. It’s a complex calculation that needs a detailed financial and risk analysis. A financial advisor can help small business owners determine the right amount of coverage.
Matching Insurance to Small Business Owner Personality
Insurance assessments aren’t only concerned with finances. The emotional disposition and personality of the small business owner are important considerations. Although there is a logical methodology for calculating insurance needs, small business owners must have the right mindset before they commit to buying insurance.
Not only should they have an understanding of the benefits of having insurance, but they must also understand the financial cost and monthly premiums—and be willing to pay for them.
Small business owners should work closely with a financial advisor to determine the best insurance solutions for their needs. Insurance is a necessary part of all small businesses, and your financial advisor can work with you to match an insurance plan to your business needs, personality, and budget.
Not only will a comprehensive insurance plan minimize risk and liability for your small business, but it also has the potential to ensure that your family and staff members are taken care of.
Also, Read: Smart Life Insurance Strategies for Business Owners
For more information, please do not hesitate to contact me.