When it comes to being an entrepreneur, it is smart business practice to buy life insurance. However, it’s also smart business practice to make sure that you will be receiving the most benefits as possible with the insurance policy you will select. You can determine which policy will be best for you by analysing your own SWOT (strengths, weaknesses, opportunities, and threats.) of your business and personal life by finding what policy will be most useful to you in the meantime; as well as in the case of an untimely death. Life insurance can serve as a powerful and strategic financial leverage tool, if you set it up properly so that you can use it while you’re in practice. Here are some things to consider upon making your life insurance policy selection.
Research and do your homework: The most important step for an entrepreneur when considering life insurance is to make sure you do a TON of research on all the insurance companies and policy agreements available. This will be your most important step that will help you find a insurance policy that will fit all of your business needs, and get you the maximum benefits out there. The best thing about digging deep and comparing all the policies is that, once you choose a life insurance plan, that policy is guaranteed for life; so if you do your research and find the best policy from the start, you will set yourself up properly for both life and death. Your goal is to find the best terms and guarantees the policies have to offer. Get a lot of quotes, and set up a variety of meetings with insurance agents. Make sure you are researching into insurance companies that plan to be in business for a long time and have a high rating response, so that your dependants can get the proper payout.
Interpret what you need: You will want to choose an insurance policy by understanding what kind of policy your business will need. Consider your business model, your debt level, your income replacement measures, and your future obligations. You can generate a holistic valuation data report to determine what type of policy to choose.
Consult an advisor: Upon doing your own research, it may be worth it to consult an advisor to make sure you have accounted for everything you want to find in a policy and to get professional advice on interpreting what your level of coverage needs are based on your equity at stake. A professional advisor can help you with that.
Know which type of insurance to buy: You’ll then want consider what type of insurance policy you want to buy.
Generally, there are two types of life insurance, Term life insurance, and Permanent Life insurance. Here is a way to differentiate the two.
Term Life insurance: Term life insurance is a policy with a termination date. The termination date is anywhere between 5 and 30 years. It’s generally a lower premium and more affordable than Permanent life insurance. Also, it doesn’t act as a large payout sum upon your death, but rather a payout in installments over a selected period of time.
Term Life insurance also does not carry the benefit of taking a loan out against your savings in the policy.
Permanent Life Insurance: Permanent life insurance or also known as, “whole life insurance,” can be a little more expensive, but you are able to take advantage of more financial leverage at times if you need to. It is set with fixed premiums. The advantages of this life insurance option, is that you can take out a loan on the savings portion of the policy when you need it for the business; and also your beneficiaries will still obtain the large sum incurred as benefit upon your death.
After doing your research, you will notice that some policy’s out there have just the financial benefits you are looking for that will add value to your current business decisions while you are still alive and well. Here are some added financial benefits you can find in a policy.
You can find an insurance company that pays tax-free dividends to the policy owner
Typically, insurance companies that have been in business for a long time is where you may find this benefit. They typically can pay the policyholder dividends every year, tax-free. The dividends provided by the insurance company depend on how profitable the insurance company is, so research a high profit company.
Leveraging the savings portion for a loan
After 10 or 20 years, some policies will also let you to take a loan out at 0% interest or a low rate like 2%. So you can use some of the money in the savings portion for a short term loan. This option can be extremely beneficial when you need short term cash flow to keep you operating. Typically these percent loans are in contract and guaranteed for life. They are called a “spread loan” or “wash loan.”
Interest benefits on a policy savings regardless of loan leverage
With finding a policy that allows you leverage a loan, You can also consider a ”participating loan” at 5% interest, which allows you to continue to earn interest on your money that is still inside your insurance policy regardless of the loan in process.
If you have a business partner consider a “Buy-Sell” agreement
This means if you and your business partner get life insurance and your partner dies; the partners insurance policy funds their family AND the partners interest in the business so that the business will not suffer or be delayed.
Consider Keyman Life insurance
If your company relies on a key person for its continued operation you may want to consider inquiring about Keyman life insurance. This insurance is different than personal life insurance in that, it covers a key person or multiple key people so that if anything should happen to vital people, the business can still survive; because keyman life insurance focuses on sustaining and financing the continuity of the business after death. The benefits could include: replacement of key people, improves your credit, pays off investors, pays debts, pays employees, prevents immediate bankruptcy, and can even be used to close the business in a professional manner.
Ask about bundling
Some policies will offer a discount on the premium if you also purchase a health insurance package.
Ask about discounts
If you’re a member of a trade group or professional organization you can sometimes get a discount with the right policy.
Take your time and be certain of the policy you are committing to
Make sure you and your family thoroughly understand the policy terms. You may even want to have the contract inspected by a 3rd party before final commitment. Insurance agents may try to rush you, but don’t allow to be rushed.
There is a very large market out there to find the right life insurance, but considering all the benefits and financial tools you can utilize as an entrepreneur while you’re still in business; be sure to take your time and weigh your options so that you can find the right fit for your needs. After you’ve put the hard work in, you only have to set it up once, and you’re set for life. You can then carry on with great peace of mind, and create the business life you’ve always wanted, knowing that you have an endgame in mind when you’re not around anymore.