As a small-business owner or partner, you may be concerned about what would happen to your company if something were to happen to you. How would you and your family deal with a lack of income? What about your employees’ and their families’ well-being? What happens when a company has obligations that are secured by assets such as the family home?
You’ve certainly anticipated some of these questions, but before you take that leap of faith, consider these common falsehoods and a reality check.
If I die, my spouse will be able to oversee the company.
Reality check: In many circumstances, the spouse does not want to or is not competent of operating the business. Small firms are frequently reliant on the owner’s marketing, technical, or management abilities. If you take that away, the company may fail.
The company will be purchased by a rival.
Let’s face it: Perhaps, however this may not be to the benefit of the remaining family. The rival may be attempting to steal clients, purchase inexpensive equipment and inventory, or buy the firm for a low price.
My or my partner’s death will have no financial impact on the company.
Reality check: Typically, each owner of a small firm offers a very distinct and vital contribution to the business or possesses a unique expertise that is difficult to replace.
A crucial employee may manage the company.
Reality check: Perhaps, but if the employee is genuinely running the firm, he or she may deserve a wage that reflects the increased duties of the position. The finances required to keep everything running may be more than the company can handle.
This is when life insurance comes into play. Life insurance may safeguard your small business in three essential ways:
Insurance for key personnel. This is a life insurance policy obtained by the company and payable to the company in the event of the death of a key employee. When a key employee dies, insurance can assist compensate for missed sales or earnings as well as cover the costs of locating and training a successor.
A life insurance-backed buy-sell deal. This permits remaining business owners to purchase a dead owner’s firm interests at a previously agreed-upon price, ensuring that surviving family members are properly and swiftly reimbursed for their portion of the business.
Life insurance for individuals. Individually owned policies can offer additional funds to your family to pay off personal debts, support continuing living expenditures, and fund future necessities such as college or retirement.
Check out the tale of Anne Gongos, a surviving spouse who relied on life insurance and the proceeds from the sale of their small business when her husband died unexpectedly. For small-business owners, life insurance may be a financial lifeline.
If your children are grown, your house is paid for, and you’re preparing to retire (or have already! ), it may appear that the time for life insurance is over. Perhaps you believe that your savings and assets, together with Social Security, will cover whatever comes next.
In reality, many empty-nesters and retirees are prevented from getting or maintaining the necessary life insurance coverage due to these misunderstandings. If any of these four misconceptions apply to you, you should reconsider.
Myth 1: I don’t need life insurance now that my children are self-sufficient and my mortgage has been paid off.
Perhaps, but if you died today, your spouse would still have to pay for day-to-day living expenditures. And what if your spouse outlived you by ten, twenty, or even thirty years? Would your financial goals, in the absence of life insurance, allow your spouse to retain the lifestyle you’ve worked so hard to achieve?
Myth 2: By the time I die, I’ll have accumulated enough money to leave something to my children and grandkids.
Maybe working long hours at work and managing your family’s funds prudently may help you attain your goal. But what if you don’t live long enough to achieve your financial objectives? What if the economy suffers a prolonged slump that has a negative impact on your investments? Life insurance may instantly create an estate, allowing you to leave a legacy for future generations or finance a preferred organization or cause.
Myth 3: I used to think I’d need life insurance to assist pay inheritance taxes, but that’s no longer an issue.
Even though you are not now liable to federal estate tax, there is no certainty that this will always be the case. Tax rules are subject to rapid change. Even if they don’t, there are several more reasons to have life insurance policy in place later in life. When you die, life insurance can cover expenses such as state estate taxes, outstanding bills, probate charges, and burial preparations, enabling your loved ones to focus on their grief rather than financial problems. It can also be used to divide an inheritance among heirs or for company succession.
Myth 4: Buying life insurance when I’m older is too expensive.
While it is true that the cost of life insurance increases with age, this does not always indicate that it is out of your financial range. A healthy, nonsmoking 55-year-old man, for example, can get a 20-year, $500,000 level-term coverage for around $1,600 per year. The yearly expense for a healthy 55-year-old woman is around $1,200. So, if you require coverage on a regular basis, don’t assume you can’t afford it.