Many times entrepreneurs ask themselves these questions: Is purchasing a life insurance policy a good idea for me as an entrepreneur? I am young and in excellent health condition. So, why I would want to invest in an insurance policy?
You are an entrepreneur, and probably you have invested already your money, time, and efforts to ensure that your spark in the form of a business idea becomes a real business.
According to the LendEdu survey about life insurance, 54% of Americans have a life insurance policy, and it is more than half of the people in the US. Something interesting that can be seen from the results is that only 33% do not fully understand their policy.
The survey also found that of just less than half of people without this insurance, more than 50% plan to get insurance in the future, and 44% are not insured because they can’t afford it.
When you understand how important life insurance can be for your life, you will start thinking much more about this topic.
Let’s start with the basics, or what is life insurance and why you need a life insurance policy.
What is Life Insurance?
When it comes to life insurance, in its simplest form, you will pay premiums to your insurance company, and the company will pay money to your estate or your beneficiary after your death.
With life insurance, you are protecting your heirs from this unfortunate possibility. This becomes more important when you are the sole source of income for your family. In this case, if something happens to you, your family will be protected from the financial point of view.
You Are Business Owner, So Why You Need Insurance
In the life of every entrepreneur, the risk is an essential part. You can lose your money. Also, you will have bad days with failed projects.
But all risks can be and will need to be managed somehow. When we talk about financial risks because of uncertainty, we can use some insurance. Regarding health issues, we have health insurance. Because of the risks around us, we decide to buy insurance, and in such a case to protect ourselves from the dangers of the risks that can be an unmanaged risk. For example, with health insurance, if you need to see a doctor without health insurance, even primary care can cost you a fortune.
As we already mentioned, you as an entrepreneur know that you need to expect unexpected things to happen in your work. Also, you know the importance to do things that will prevent some negative consequences, why you do not apply the same things for your own life as well.
Are you making the risk assessments for your business? Probably you do something like this. So, you should be doing the risk assessment with your health and wellbeing. The only thing that will help you in managing such risks is being insured. This is an entrepreneurial way of thinking.
You need to take into considerations that without life insurance protection, the unexpected death or injury of some of the founders could crash the company, starting with layoffs and bankruptcy.
What is the First Thing You Will Need to Do?
The life insurance is not so much popular because it is the insurance we buy not for ourselves but for our beneficiaries and personally we will never benefit from this insurance. But your family will depend in the future on what you will do today.
So, before you decide to take life insurance, it is essential to do several things.
Start with the analysis of your needs. What is the situation when it comes to your personal and business finances? What your family will need if you pass away? Look at your personal and business debts, mortgage payments, the income of your family members, future financial needs related to your kids as college, savings, and so on. When you calculate these things you will be in a better position when you search for life insurance policies.
2. Compare insurance companies.
When you have the figures from the previous step, and you know how much your family will need, now you need to compare different insurance companies and quotes. You will need to meet and talk with insurance agents to get the information about what they offer. So, get the information and make a benchmark analysis to see what are the best options for your need.
3. Make a decision.
Now you know what you need, you know what are the best options when it comes to life insurance for you and you can make a decision to buy the most proper policy for you. Additionally, you want to be sure that the insurance company will still be there in the future when your beneficiaries need a payout.
Two Types of Life Insurance
There are two types of life insurance. The first is term life insurance, and the second is permanent life insurance.
The term life insurance policies as its name state cover a specified timeframe, usually from one to 30 years. In the worst case, if you pass away during the term’s coverage, the insurance company will pay out a specified benefit to the person or organization, also known as beneficiaries. So, you pay monthly amounts for a specific, and if you pass away while the policy is outstanding, then your beneficiaries receive a predetermined sum of money.
Permanent life insurance from the other side is not related to the specific timeframe (term), but it provides lifelong protection. Many policies offer guaranteed minimums for your cash value growth. As you continue to pay the amount of agreed premium every month, your beneficiaries will receive the full amount guaranteed by your policy.
Many wealthy individuals are using their life insurance policy as a savings account to assist their families.
Specific Reasons Why You Need Life Insurance
Here I want to cover some specific reasons you can take into consideration when you want to decide about life insurance. You need to understand that the life insurance policy should be a good fit for you and your business, reflecting the scope and scale of your business. So, when you decide about purchasing life insurance, as we mentioned earlier, you need to evaluate your individual insurance needs based several factors such as current and possible future debts, income replacement and current and future obligations.
1. You and your co-founders will need life insurance to ensure business survival.
If your cofounders, co-owners or some key employee is suddenly gone or get sick, the business can decline very quickly. With the right life insurance, the surviving partners will have sufficient capital to keep the business operations while looking for a replacement for the deceased partner.
Sometimes you can have persons as a part of your team crucial for your business, and you want to keep them permanently without retirement, the permanent life insurance should probably be most appropriate. On the other side, term life insurance can be more relevant in the case of team members who generate most of the income for the company, and the insurance will be related to the expected retirement date. Also, term life insurance policy is more appropriate if some of the partners personally guaranteed leases or loans for the business.
2. Save your company from bankruptcy after you
As an entrepreneur, probably you want your company to continue on the path of success after you are no longer in charge. Without having the required finances, bankruptcy is possible in such a case.
If you succeed to customize your life insurance policy according to your specific situation, the closing the doors of your company doesn’t have to happen. Your company will be saved even if something happens to you.
3. Brand protection
After you are retiring from making decisions in your company, the business may start to lose the money until there is an appropriate replacement for you. Your insurance policy can ensure the protection of your brand. There will be enough finances to keep things going on until the company finds a competent individual who will take your role.
4. Debts payment
You already know that every business need and will always need financing. If something happens to you, your company can not pay the debts you have taken for normal operations. With life insurance, all your debts can be paid if your policy covers your repayments to be paid by the insurer.
5. Employee protection
Because you are an entrepreneur who owns and manage the company, your small business team members are also dependent on you. Having insurance means that you will protect your employees. The finances from your life insurance policy can be used to keep the business going on and keep the employee’s payment.
6. Cash when you need it
When you need a short-term loan to cover some business expenses the life insurance can become helpful because you can use your savings as collateral security for borrowing money. If you have an appropriate life insurance policy, you can get finances when you need it.
7. Family protection
As we already mentioned here, your family will entirely depend on your income, so if something happens to you, your family might be left unprotected. To ensure that your family will continue with the lifestyle you have secured for them, and life insurance is something you will need to consider. The fact is that your family members will have to go on with life without you, but the life insurance policy will make that easier for them.
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