Life insurance is necessary if you are a business owner and have people depending on you. The days after death are usually tough for family and business associates as they try to grapple with the loss of the dead person. Life insurance will come in at this point to alleviate the financial burden on the family and business partners.

Therefore, as you work hard to build your business over several years, ensure you prepare for its future. A business life insurance is fundamentally different from personal life insurance, and the key difference is in the beneficiaries. The former protects business associates, including partners, employees, and clients. The latter helps the family deal with the breadwinner’s death until they can sort themselves out.

Types of Life Insurance for Business Owners

Life insurance policies are differentiated by their coverage. The two types of life insurance available for business owners are explained below.

Term Life Insurance

The term life insurance stipulates a timeframe during which the insurance policy will run. This duration can be 10, 20, or 30 years. Once the term lapses, you can end the plan or extend it. The major benefit of this insurance type is flexible and affordable. Once a term life insurance expires, you have the fund to buy out your partner’s share of the business if he dies. Average monthly costs for term life insurance rates depend on age and coverage.

Permanent Life Insurance

The permanent life insurance is in force throughout a person’s lifetime and will only be payable after the subject’s death. With permanent life insurance, you have to pay premiums throughout your life. The benefit is in the cost-effectiveness. With permanent life insurance, your insurance builds cash value, which you can tap into during your life. The payout is usually large enough to settle your business and personal financial obligations.

Why Your Business Needs Life Insurance

Life insurance is not exclusive to corporations and large businesses. Small and medium business owners can use life insurance to secure the financial future of their businesses. This fund can bail you out a couple of times during your lifetime and leave your estate catered for after your death. Here are some reasons your business needs life insurance.

Policy Loan

Life insurance is a viable way to take out a loan without most of the hindrances of the traditional banking loan. A policy loan is a way to take out a loan based on the value of your insurance. A lot of times SBA loans are required to be backed by life insurance. It is an appealing opportunity for small and medium business owners as the interest on policy loans is usually lower than traditional loans. It also helps to know that the money is moving in a cycle and will get back to you either through the dividends paid by most life insurance companies or your payout.

Protection for Key Persons

Businesses often suffer after the death of a key member. You can protect your business from falling into despair after your death or that of any other key person by ensuring the executive board members. In addition, after the death of a key person, the insurance payout can be used to mitigate the financial loss possible to be incurred after the person’s death.

Cash Value

Over the years, businesses have come to rely on life insurance policies for their cash values. Firstly, insurance companies often pay dividends annually to policyholders. The dividends are from profits made from investments for which the capital was used. Apart from this, the value of the insurance policy grows over the years, and policyholders can make profits off them during their lifetimes.

Employee Retention

If you dedicate the better part of your life to a company, you have to make sure that you have something to fall back on during your old age. This rationale is why employees now prefer companies offering life insurance over 401k plans. After the death of an employee, the company can use the payout to recoup premiums paid and give the remaining sum to the employee’s family.

Succession Planning

The days after the death of a key business member are always rife with the struggle to maintain the balance in the system. It would help if you had life insurance to ensure that the succession of your business after your death is smooth. Then, with the financial capacity assured, other executives can buy out your share of the company and agree on keeping the business running.

Key Employee Insurance

It is not only the executive members that can be protected with a life insurance policy. Key employees whose roles are vital to the company’s operations can be insured to cover for likely losses after their demise. With the insurance payout, you can cover the cost of a replacement, premiums and pay their families death benefits.

Who is Covered by a Business Life Insurance?

A business life insurance can cover your business partner, employees, or a wider range of people. The determining factor is the type of policy you take out and your annual premiums. The two main categories of people covered by a business life insurance are:

Business Associates

This group includes your business partner, employees, vendors, and other people you may have financial obligations to within your business capacity.


A business life insurance policy can also provide for your family after your death. This type of insurance will be big enough to pay for your business and personal relations. In addition, some policies encompass all the beneficiaries that will be affected by your death.

How Much Does Life Insurance Cost?

The cost of your life insurance premium depends on how much you want the payout to be after your death. The higher the payout, the more premium you have to pay. The way business life insurance works are that if your business partner needs $1 million to buy out your business after your death, you take out insurance of 1 million dollars.

The insurance company will work with you to decide on a policy that will enable you to pay the sum across even premiums during your lifetime. The average monthly premium for a business life insurance is $99 and the $1,191 annually.


Every business owner needs life insurance, whether large or small. This insurance will protect your business after your death or any key persons within the organization. You can get separate policies for your business partner and your family, but some comprehensive policies cover business and personal death benefits.