Business owners protect many types of company assets with insurance: equipment, real estate, intellectual property, inventory, and much more. Yet most fail to adequately insure their business’ most valuable asset – themselves.
Life insurance should be a key part of a detailed and comprehensive personal and business financial plan that should be discussed with your team of advisors. In the event of your death, could your company continue, or would it have to close its doors, leaving your family struggling financially? A life insurance policy can help protect the business if the worst occurs, and many business owners see the value in paying for this type of coverage.
However, if you suddenly became disabled due to illness or injury, would your business be able to maintain itself without your presence?
According to the Social Security Administration, one in 10 Americans live with disabilities that are considered severe, and one in four of today's 20-year-olds will become disabled at some point before they retire.1 Business owners are more likely to become disabled than they are to die prematurely, yet most don’t have sufficient insurance to cover their personal and business expenses if they are unable to work at their company.
Several types of insurance are available to help protect businesses in these circumstances, and it’s wise to consult a finance professional and an insurance agent to see which plan would be best for you. Working together, they can lay out a strategy to help fill in any gaps in coverage so the business can continue to operate and provide an income for your family even if you’re not around.
Business Overhead Expense Insurance
An individual disability policy can cover household expenses while the policyholder is unable to work, but business overhead insurance (BOE) is designed to cover the ongoing expenses of a business while its owner is disabled. Typically, BOE benefits are paid for a short period of time, up to two years. A BOE policy does not replace a personal long-term disability policy, but you may be able to save money on premiums by buying the two products from the same insurance agent.
Key Person Insurance
“Key person” life and disability policies can provide financial protection if someone critical to the company becomes disabled or dies. The key person may be an owner or partner, an important sales executive, or a manager who oversees daily operations. The company decides whom it wants to cover, and the company is named the beneficiary of the policy. Insurance proceeds can provide funds for cash flow as well as money to recruit and train a replacement employee. They can also enable the remaining partners to purchase the departed or disabled partner’s shares from their family members or heirs.
How Much Coverage Do You Need?
Each company’s needs are different. That’s why it’s important to consult professionals with experience in evaluating business operations. Going over your financials together should give you a good idea of how much cash flow you’ll need, how much your share of the business would be worth, and other important considerations. Make an appointment today to help protect your company’s most valuable asset.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.