Purchasing life insurance is essential if you want to protect the family members who depend on you. In the same way, if you are a business owner, you need coverage that will preserve your business after a key employee passes away. That’s why you should have insurance for business. Since this protection is made up of several elements, we will give you some tips on how to choose the right business life insurance for your enterprise.
How much business insurance do I need?
Before we get into all the factors that you need to keep in mind for purchasing insurance for business, there are some basics you need to understand. First, this coverage should be a must for every company. It doesn’t matter if it is a startup or a large corporation. Also, depending on your particular situation, the premium for the policy could increase as it will happen with standard life insurance.
Now, in case you don’t know what business insurance is, here is a short explanation.
What is business insurance?
Overall, business life insurance works the same way as a standard policy. The only difference is that the policyholder will be the company. That, however, doesn’t mean that the corporation is insured. Even though this sounds confusing, it will make sense in a second. When you purchased the policy, you will have to pick a person to insured, whether it is the CEO, owner or partners. That means that if that person passes away, the company will be able to access enough money to cover any income loss.
In case you think that this coverage is not necessary for your business, here are some reasons that will change your mind.
- If you are the sole owner of a company, in case you pass away, that situation will affect your family and your business. Without insurance, your family might have to collect a large amount of money to keep everything afloat. If they cannot do it, there is a high probability that your company will disappear.
- In case there are several partners when one of them passes away, their shares could end up under the name of their spouse or ex-spouse. That means you will have to run the company with them.
- Some people don’t worry about passing away since they think their family will be able to take over. But in reality, that is not always the case since your loved ones don’t have the required experience. In the end, they could end up selling the company or shares for far less than what it is worth.
Due to all these possible scenarios, the best thing you can do is get insurance for business. To help you out with this whole process, here are some useful tips. Remember that in case you have a large corporation, you might need extra coverage. To learn more about this, check here.
5 Tips for Choosing Insurance for business
1. Considering the different policies
If you have life insurance, you know that there are different types of policies you can choose from depending on your individual needs. The same thing happens with business life insurance. You have the option of picking between a term or a cash value policy. Term coverage usually has a limit while the latter one lasts a lifetime. Here is an in-depth explanation of both coverages.
Term Life Insurance
As we explained above, this protection only lasts for a determined time, but the advantage is that it is affordable. This will be a good policy to choose if you don’t want something permanent at the beginning. However, keep in mind that over time your premiums can increase. This means you’ll end up paying the same value you will have for a cash value policy. We recommend getting term life insurance if you have a small business or a startup.
Cash Value Insurance
In this regard, there are three types of cash value policies.
- Whole life insurance: can be five to fifteen times more expensive compared to a term policy. But the great thing is that your company will regularly pay into the cash value of the policy.
- Universal life insurance: with this policy, the company will pay interests into the cash value, plus, you will get more flexibility.
- Variable life insurance: even though all three policies last for a lifetime, in this one, your cash value will be invested into a portfolio.
2. Calculating your coverage
Many people wonder, “how much business insurance do I need?” That’s why we will tell you how to calculate the proper amount of coverage for your company. The first thing you need to do is making a list of all your liabilities. It doesn’t matter whether they are short or long term. Think about the taxes on investments, salaries, interests, and accounts payable. Then, add it all up to know how much insurance for the business you need.
In case, you own a large corporation the answer to the question “how much business insurance do I need?” is going to drastically change. That’s why we would recommend asking for the help of a financial advisor.
3. Requesting several quotes
If you want to get the best rate for your business life insurance, you need to shop around. Request quotes from different companies since the price can change. That way, you’ll make sure you are getting the coverage you need for the best price.
4. Ignoring the price at first
We know it sounds difficult, but if you want to get the ideal business life insurance, you should consider several factors. For instance, make sure you compare what is guaranteed vs what is not. Also, look at what is included and whether the premium will increase after some time. Then, in the end, compare the price.
5. Being patient
Once you start the process of getting your business life insurance is going to take a while. That doesn’t mean that something is wrong or that the company has denied your request. The majority of the time the insurance company spends a long time in the underwriting process. However, you can always can your insurance agent and ask for updates on the process. You can also talk with them to determine if there is some way in which you can accelerate the application.