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What is Business Life Insurance Used For?

  • November 6, 2020

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Business Life Insurance

Every business needs to anticipate and plan for the unforeseen, including loss or incapacitation of the vital people tasked with running it. Business life insurance allows a business to continue operating even when the owner passes away suddenly. It also softens the financial blow for the bereaved and other dependents.

Business owners use life insurance policies to protect their families, business partners and key employees against sudden and unexpected death. In addition, it can help businesses attract top talent by guaranteeing the protection of the employees’ loved ones.

Here, we explain four reasons for taking out business life insurance.

Provide coverage for key employees

A business life insurance policy can help you protect top executives and key employees in your business. The survival of most business entities such as sole proprietorship, partnerships and corporations often depends on the expertise or performance of certain people. If they suddenly pass away or are rendered unproductive, this could have a negative impact on the business.

Related: Applying for Life Insurance? Keep these Points in Mind

For instance, a production company may be forced to stop production if the production manager dies which could in turn lead to a significant loss in revenue.

A business life insurance can help keep the business afloat until a suitable replacement is found. You can use the life insurance death benefit to pay for ongoing financial demands such as administration costs until the business is fully operational.

If a key employee dies, the business receives a death benefit from the insurance company which can be used in several ways.

The business can use it to make up for any lost earnings as a result of stopping production. It can also be used to find and train a good replacement.

Facilitating the recruitment process

The process of recruitment can make or break a business. This is why most businesses put in a lot of work to ensure that they hire the right talent to run various parts of their operations. The idea is to ensure that those hired have the relevant abilities and skills to meet the current and future needs of the organization.

When hiring, you need to capitalize on every advantage at your disposal to attract talented employees. Offering a life insurance policy as part of the employee benefit can provide you with the advantage you need in today’s highly competitive hiring environment. The policy helps to make your business more attractive to talented potential employees. The policy can be structured in such a way that the employee’s loved ones receive a payout if the inevitable happens.

Obtaining financing

Business owners are always looking for ways to expand and grow their businesses. In most cases, business expansion requires a large sum of investment which is usually provided through loans.

But expansion may not be the only reason why a business may need additional funds. We are living in difficult times especially with the coronavirus pandemic. Business owners can use the additional funds to weather hard economic times.

In some cases, financial institutions such as banks may require you to have a life insurance policy to qualify for financing. The policy acts as collateral for the financial institution and the lender can be listed as the policy’s beneficiary.

Succession planning

A life insurance policy can act as the foundation of the business succession plan by acting as the funding vehicle for a buy-out or a sell-out agreement. The death benefit can provide the funds needed to buy the deceased partner’s shares. This not only allows the business to continue operating smoothly but also helps reduce unnecessary conflicts.

If you’re in a partnership business, the sudden demise of your partner can place a huge burden on you and your employees. This is where a life insurance policy comes in to ensure the continuity of the business. How it does so is by providing you with the necessary funds needed to buy out your partner’s shares of the business.

Conclusion

A business life insurance policy is an excellent asset to any business. In a nutshell, it helps to facilitate growth while also providing flexibility and security to the business. Besides, life policy ensures the continuity of the business by providing adequate coverage for you and your partners. It also enhances the recruitment process by making your company more attractive to talented employees. Finally, this policy helps you protect the key employees and top executives of your business.

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