Is Your Small Business Exposed to Major Risk?

Mike Gann Financial Planning, Retirement Planning

According to a recent survey from Policygenius, only 32% of Americans own life insurance.1 Life insurance provides financial protection, especially for those with children or other dependents. Life insurance provides a tax-free lump sum benefit that can be used to cover a wide range of expenses and financial challenges.

Life insurance is a valuable tool for many Americans, but it can be important for small business owners. In many small businesses, the owner wears multiple hats. You may be the CEO, but also a salesperson, a manager, a bookkeeper, and much more. If the owner passes away, the business could suffer a major loss, both financially and operationally.

Fortunately, you can use life insurance to minimize your risk and protect your business and your family. If you don’t have life insurance or don’t have enough, now may be the time to explore your options. Below are a few ways you could use insurance to protect your family in the event of your death:

Provide the business with liquidity and cash flow.

It’s never fun to think about death, but it’s also too important to ignore if you own a business. Imagine what might happen if you were to unexpectedly pass away. Would your business continue to run seamlessly? Or would it face major disruption? Who would run the business?

Life insurance can give your family and your business much-needed cash to keep the business running while they address those questions. They can use the cash to pay bills, make payroll, and maintain operations until they develop a strategy for how to move forward.

Compensate your family and protect your partners.

Do you have a business partner? Or even multiple partners? An unexpected death can create chaos in a business partnership. On one hand, your partners may be able to assume your responsibilities and keep the business afloat.

On the other hand, your partners may also want to take over your share of the business. You’ll likely want your family to be compensated if that happens. Life insurance can provide funding to facilitate that transaction.

You and your partners can all buy life insurance policies on each other. If you pass away, your partners receive the death benefit. However, you use a contract called a “buy-sell agreement” to dictate what happens with the benefit. For instance, your agreement may state that your partners use the proceeds to buy your share of the business from your family. Your loved ones receive compensation and your partners are able to keep the business running.

Avoid liquidation or other undesired outcomes.

Assume you pass away and you don’t have partners or a family member who can step in and run the business. What happens? Your survivors may have no choice but to fold up shop and sell the business. In fact, if you have outstanding debt, your creditors could foreclose and liquidate your business’s assets.

Life insurance helps your heirs avoid that situation. They can use the proceeds to pay off debts and meet financial obligations until they can find a buyer or other suitable outcome. That can prevent liquidation and help them get fair value for all your hard work.

Ready to protect your business and your family? Let’s talk about it. Contact us today at Advantage Retirement Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

1https://www.policygenius.com/blog/many-americans-are-underinsured/

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19300 – 2019/9/24