Smart Life Insurance Strategies for Business Owners.
What considerations should business owners consider when looking to purchase life insurance? The first thing is to perform a proper thorough needs analysis of their current financial situation. In order for a financial advisor to make any realistic and proper recommendation, at the very least one must first know their client.
There is a strong tendency to lean towards life insurance as the intended product. Everyone understands the impact of death and its finality, but there are other equally important products in the market that should be considered to protect the small business owner that may be just as essential and, I will lay them out for purposes of this article in no particular order.
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Small business owners should definitely consider disability insurance. Few small business owners have the resources, or savings, to cover the loss of their earning power should they become disabled through accident or sickness.
A disability policy will provide a sustainable replacement of income should something unforeseen occur. Most disability policies will address income replacement all the way through to age 65 for a long-term claim. There are some contracts that will cover short-term loss of income as well.
One of the least discussed forms of disability insurance is something called Business Overhead Expense. Many business owners are not aware that this type of coverage exists. While it will not cover loss of income as described above, it will cover expenses should the business owner become disabled, such as professional fees, administrative assistant salaries, rent, etc.
It is definitely worthy of a discussion with your financial advisor.
Another form of disability insurance that works very well in a partnership situation, is Disability Buyout Insurance. Essentially partners in business purchase a disability policy that funds the purchase of a partner’s shares should they become ill and no longer able to work or contribute to the business.
As you can see there are numerous applications for Disability Insurance for the small business owner, and they should be reviewed as part of a solid business plan.
Another important insurance product that small business owners should consider is Critical Illness Insurance. Unlike disability insurance which is effectively salary replacement insurance, Critical Illness insurance covers a range of 26 specific illnesses and will pay out a preselected lump sum amount in cash tax-free after surviving thirty days from diagnosis.
In some instances, there are options to purchase a guaranteed return of premium as early as fifteen years after the policy has been issued, providing, generally, that you have not already claimed on the contract. It is important to stipulate that Critical Illness coverage in no way replaces Disability Insurance and vice versa. It is safe to say that consideration should be given to both products when determining your exact needs.
In conclusion, every business owner’s situation is unique and careful consideration should be given to all types of insurance. Having a little bit of something to protect yourself is a lot better than having nothing at all.
For more information, please do not hesitate to contact me.