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As a soloist, you’ve probably got a lot on your plate. You are probably responsible for creating a business plan, running day-to-day operations, strategizing growth, helping customers, and much more. Running a business usually requires long hours and a lot of hard work.
If you don’t get around to turning all these plates, your loved ones and business may face significant financial difficulties. We will review the five factors and types and considerations of your life insurance needs to protect your business and family.
Related: Why life insurance is important for entrepreneurs
Types of life insurance for single people
There are two main types of life insurance: term and permanent. The cost of a term policy is less than permanent but only for a fixed period. For example, you could buy a 10- or 20-year term life policy.
You can purchase an additional term policy or convert it into a permanent policy in the future Permanent policies are more expensive but protect you for the rest of your life.
Also, keep in mind that some policies may take weeks or months to establish if you need a medical examination. So, if you are in a hurry to get coverage, consider life insurance without waiting time.
Why business owners need life insurance
Here are five reasons why you might need life insurance when working for yourself.
1. Financial security of your family. If you have children, a spouse, partner, or elderly parents who depend on your income, their financial life without insurance benefits can be significantly affected. Paying a handful to one or more of your beneficiaries allows them to pay for any expenses such as your funeral, daily bills, and future goals such as going to college or buying a home.
2. Eligibility for a business loan. In many cases, you must have life insurance to qualify for a business loan backed by a personal lender or Small Business Administration (SBA). You usually need a term policy that covers the repayment period of your loan. You have a life insurance policy to protect your liability when your lender has significantly less risk.
3. Serve as collateral for business loans. Life insurance can act as collateral for a small business loan. The policy pays off your debts when you die, and the remaining benefits go to your beneficiaries. You usually need a fixed policy with a cash value that can be set aside for your liability.
4. Protect your business partner or key person. Life insurance should be an important part of the legacy plan if you want to continue running your business after you leave. Whether you are an individual or a key person in your business, such as a partner or employee, life insurance helps keep your business running until an heir can take over or your heirs sell the enterprise.
5. Sell your business shares. If you own a business with partners or are key employees, life insurance can be an essential tool in allowing them to buy your inheritance. Instead of your family taking charge of your business, they may sell your share to one or more heirs. The company can run without you and your family will receive a single monetary or structural payment.
Related: Top Ten Reasons Why Investing In Life Insurance Is A Good Idea
How much life insurance is needed alone
There is no one-size-fits-all answer for the exact amount of life insurance you need as an entrepreneur. However, a general rule is that your annual income should be at least five to ten times.
If you only use life insurance to protect loved ones, consider how much you have saved and what their future costs might be. For example, add expenses like your funeral, mortgage, car loan, child care, adult care and college expenses. Also, consider any business liability that may be responsible for your property, including arrears, payments to employees or contractors, payment of leases or mortgages, and taxes.
If you purchase life insurance to qualify for a business loan, the amount of coverage should usually be equal to the amount of the loan. So, if you are taking out a 200,000 loan, your life insurance policy needs to have at least $ 200,000 worth of coverage.
Also keep in mind that you may have multiple life policies. For example, as your income increases, you may purchase additional term policies for additional coverage for your family. You may have a separate permanent policy for your business needs.
Once you know the type and amount of coverage you need, shop through different companies for life insurance quotes online. By purchasing the best life coverage for your situation, you can be sure that your business and loved ones will have a secure financial future if something unexpected happens to you. If you need help understanding your coverage options, consult a licensed insurance broker or business attorney for specific advice.
Related: Is Life Insurance A Good Investment?