FAQs About Insurance
How can life insurance to protect my life's work?
After you've spent your lifetime building your business, the next prudent step is to take the time to consider how to protect your lifelong investment. The careful application of life insurance covering the right area is one tool available to the business owner.The assets accumulated during the growth of your company may include buildings, equipment, land, key employees, your accounts receivable, and of course cash. On the other side of the ledger will be the debt you may have incurred in order to expand and grow. Of all your assets, the most flexible and useful asset is cash. Given the proper financing, most organizations can change and adapt to varying market conditions and events that may impact operations.
The next most valuable assets are employees who have proven themselves to be both competent and reliable. In most family owned small businesses, there are one or two key employees who have been with the company long term and whose experience provides a major asset. How do you protect these two important variables? Consider the use of life insurance.
The purchase of life insurance on a valuable employee provides two ingredients of safety. The first is a cash reserve which can be tapped when necessary, offering access to funds in times of hardship or when loan interest rates may be prohibitively high. The second safety benefit comes into play should the business suffer due to the death of a key employee. The death benefit provides a financial cushion, allowing the organization to recover from the loss of profits that may ensue due to the loss of an employee. It also provides a means of securing a replacement employee of equal skill and experience. Remember that hard assets are useless without the proper employees to utilize them.
Life insurance is also a useful tool in ensuring the continuation of a business in the event of the death of a partner or major shareholder. Coupled with a buy-sell agreement between partners, life insurance provides affordable protection, and prevents the financial burden that can be placed on both business and family at a time when emotions are running high.
If you've worked a lifetime for your business, it's worth just a few hours of planning and consultation with a life insurance professional to consider the use of life insurance in protecting your major assets and providing for a smooth ownership transition in the face of unforeseen events.
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