Why Business Owners Need Life Insurance

Most business owners are both financially and professionally risk takers by nature. Most business owners are very opportunist and many do not think they are going to die prematurely.

But, risk needs to be managed whenever possible. The reason we buy business life insurance is to protect people who depend on us when we die.

Business life insurance for owners is no different then other types of coverage you routinely purchase.

Would you wait or not take out insurance on your equipment or building?

Probably not!

By not having business life insurance coverage, your family will need to find a way to replace your income and pay the bills after you have died.

Your family or business partners will also have to pay off any outstanding liabilities and loans associated with your business.

If you have substantial assets in your family you may be just fine.

However, if people rely on your income and your debts are more than they can handle, how will they manage?

The first step when developing a life insurance strategy for owners of small companies is to evaluate your needs both personally and professionally.

Our first question!

What amount of money will your family or company need if you die?

To do this run an inventory of your business debts, your mortgage payments, income needed for your family and college loans for your kids.

This will help determine the amount of life insurance you may need and serve as guide in your search for policies.

Take your time!

At Affordable Life USA our focus in the life insurance business revolves around developing sound planning strategies for successful entrepreneurs and their employees.

Life Insurance for Partners and Employees

What kinds of business life insurance should you consider for yourself and for people who work for your company?

There are several common business life insurance plans:

Group Life Insurance

Executive Bonus Life Insurance

Key-man Life Insurance

Buy-sell Agreement Life Insurance

Business Loan Life Insurance

Group Life Insurance

Group term is one of the types of term life insurance that is offered by employers as a benefit to their employees.

With a group life insurance policy, the insurance contract is between the group and the insurance company.

Why is group life insurance a good deal?

Group term life insurance is offered as a factor of your income, at no cost as part of your normal benefits package.

Plus, it is easy to qualify for group life insurance because there are no medical questions.

Many company sponsored plans also allow owners and employees to purchase additional amounts of voluntary coverage at group rates.

You will need to pay a premium for the additional coverage at the published group rate.

Executive Bonus Life Insurance

With an executive bonus plan, business owners can reward faithful employees by paying for the insurance premiums on the employee’s life.

It’s a great free benefit for the employee!

The small business owner will actually be paying for a death benefit that is owned by the employee.

The key employee will be the owner of the life insurance policy and all of the policies internal cash values.

Plus, the employee’s family will receive the death benefit income tax free.

It can also be beneficial to the company because the plan is simple to administer and cost for the executive bonus plan is tax deductible.

Key Person Life Insurance

If you have a key executive who is vital to your company, you might consider taking out a policy called key man or key person coverage.

Key man life insurance is a policy that provides a business much needed capital in the form of a death benefit, if a key person should die.

The injection of funds help the surviving business partners keep the company running by paying employees, suppliers, and making loan payments.

So, a keyman life insurance policy is purchased by the company to cover the life of a key person.

Many small companies purchase between three to five times the key person’s annual salary.

The company is normally the policy owner, beneficiary, and premium payer.

Are the premiums paid considered tax deductible for life insurance on business owners?

Yes, business owners can take a tax deduction, but only if those premiums are charged to the insured employee as taxable income.

Buy Sell Agreement Life Insurance

Many successful partnerships also have formal buy-sell agreements using business life insurance to divide the business shares with the death of a partner.

The buy-sell agreement requires partners to sell their shares according to a predetermined formula to the company or the remaining members of the business.

A buy-sell agreement for business partners will be funded by using a life insurance policy.

A buy sell life insurance plan can be structured as a Cross-Purchase Buy-sell Agreement or a Stock Redemption Plan.

A cross purchase buy-sell agreement requires that each owner to buy a policy on each of their partners.

Typically, the death benefit is equal to the partner’s share of the net worth of the business.

Each owner will be beneficiary, premium payor, and owner of each policy they purchase on the lives of the other business partners.

In a stock redemption plan, the company buys life insurance policies on each of the owners.

If a shareholder dies, the company buys the deceased owner’s share from their heirs with the life insurance death benefit.

With a stock redemption plan the deceased shareholders family receive immediate liquidity at fair market value for their share of the business.

The company will pay for the premiums, be the policy owner, and be the beneficiary on each of the life insurance policies in a stock redemption plan.

Business Loan Life Insurance Protection



In the current low interest rate environment, many business owners are relying on SBA (small business administration) and bank loans to help grow their businesses.

Business loans are great for expanding your company, but also bring about the worry of the death of the business owner.

In some cases, business owners must have SBA loan life insurance to get approved for funding.

Most company owners choose term life insurance for SBA loans because it costs less then whole life.

Buying Tip

When looking into any strategy that involves a new formal company agreement, we recommend having your document drafted by your attorney.

An attorney can make sure your life insurance buyout strategy is both legal and structured properly.

Also, take the time to discuss the policy with your family and business partners to make sure that they understand the details of your plan.

After all, they are the people who will be dealing with the lawyers after you pass away.

Small Business Life Insurance Quotes

Affordable Life USA makes finding the perfect small business life insurance plan super easy!

We have a simple process of shopping for life insurance and monitor a network of many of America’s top life insurance companies.

It will only take you a few minutes to perform a quick search using our business life insurance calculator.