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3 min read

Life Insurance for Business Owners

Life Insurance for Business Owners

As a small business owner, life insurance is an essential tool that can help protect your business from a variety of risks. Not only does it provide funds to pay estate taxes and administration expenses, which could otherwise jeopardize the future of your company, it also allows you to set up a buy-sell agreement for the purchase of your business interests.

Why should business owners have life insurance?

Have you considered what would happen to your family and business if something were to happen to you? It's crucial to plan for the unexpected. That's where life insurance comes in.

Not only does life insurance provide financial protection for your loved ones, but it also ensures the continuity of your business. Life insurance for business succession guarantees that your family will have access to necessary funds, even if your assets are tied up in the business. Whether it's for yourself, your partner, or a key employee, life insurance can alleviate financial concerns and ensure a stable future for all involved.

Types of Life Insurance for Small Business Owners

Business owner life insurance can provide cash when it’s needed in the wake of a business partner’s death. There are a few ways to go about it, including:

Buy-Sell Agreements

A buy-sell agreement is a contract between you and your business partner, which you can use individual life insurance to fund. If either one of the partners should pass away, a buy-sell agreement allows the surviving partner to buy out the deceased business owner’s share of the business.

Individual Life Insurance

With individual life insurance, you and your business partner can take out a life insurance policy on each other in case either of you die. In the event of you or your business partner’s passing, the benefits of the policy are paid to the surviving business owner. This type of life insurance for small business owners lets the surviving business partner continue running the business with less financial hardship.

Key Person Life Insurance

Key person insurance is a type of individual life insurance where the business, rather than a business partner, is the beneficiary. Key person life insurance provides your business with funds if an essential employee, such as the business owner, happens to die.

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How to Choose a Life Insurance Policy as a Business Owner

Depending on you and your business' needs, budget, and financial goals, there are two main types of coverage for you to consider as a business owner: term and permanent life insurance.

Term Life Insurance for Business Owners

Term life insurance is the most affordable (and flexible) type of insurance policy, making it a great option for most people, including small business owners. Term life insurance can provide cost-effective protection during the critical years of building your business or raising a family.

As a business owner, you can also purchase term life insurance policy where you list your business partner as the insured person. In the event of your business partner’s passing, you’ll have the financial stability to buy the remainder of the business.

Permanent Life Insurance for Business Owners

Permanent life insurance costs much more than term life insurance because your policy stays effective for your entire lifetime as long as premiums are paid. Upon your death, your beneficiary will receive the life insurance benefits you’ve invested in over the lifetime of the policy.

Permanent life insurance also builds cash value, which you're able to access while you’re still alive to cover any personal or business-related expenses. Although more expensive, the guaranteed payout can be useful to help your family or business partner cover expenses after your death.

How much life insurance do business owners need?

The life insurance policy you choose can cover your family, your business, or both. How much coverage you need depends on what you need your life insurance to cover.

If you're looking to purchase life insurance to protect your business, consider these business expenses that will need to be paid in the event of your passing:

  • Daily expenses
  • Inventory
  • Loans
  • Payroll
  • Rent or mortgage payments
  • Utilities
  • Vendors

Business owners should purchase a customized life insurance policy specific to your business assets. According to the National Association of Insurance Commissioners1, consider the potential financial impact that your death could have on your business. These scenarios include:

  • Buying multiple of the business partner’s salaries, such as five times their income
  • Covering the amount needed to buy out the deceased partner’s share of the business
  • Calculating the cost needed to hire and train a replacement (plus a little extra for downtime during the hiring process

Try our one of our term life insurance cost calculators to find out how much term life insurance you need.

Term Life for Business Owners

Whether you are just starting out in your entrepreneurial journey or have been running your business for many years, it's important to understand the critical role that life insurance can play in supporting and protecting your enterprise (protect your business from a natural disaster). If you are unsure about which type of life insurance policy is right for you and your business, consult with an experienced financial advisor who can provide guidance and recommendations based on your specific needs and goals.

With the right planning and preparation, you can be confident that your business will continue to thrive long into the future.

Best way to have an idea about life insurance? EGGRS free quote includes multiple of the best coverage options from top-rated insurers. Get your free quote today!

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1: National Association of Insurance Commissioners Common Strategies


EGGRS Full LogoEGGRS understands the importance of preparing for unexpected changes while keeping your busy schedule in mind, so we have created an efficient process that anyone can follow.

Our ideal, uncomplicated process allows you to do everything online, including requesting life insurance coverage and receiving it within 20-30 business days. Our services include term life insurance, risk differentiating underwriting, request a quote, and free calculators. Contact EGGRS for more information!

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