Insurance for Small Business Owners

Life Insurance

Before most banks will lend a business owner money, they require a life insurance policy on that person. Usually the insurance is a term policy, and covers payment of the loan in case the borrower dies. The business owner usually buys the policy annually and always names the bank as the beneficiary.

Term Insurance. At the houtset, this is cheaper than a permanent policy. However, remember that the payments increase annually; you should consider permanent insurance if your business can afford it, and make sure all families as well as management are provided for—creditors may take everything to get their debt covered. Don't leave families without assets and income.

You can also find what's called "key person' insurance. A buy-sell agreement of a limited partnership or a business with main stockholders needs this kind of policy. Unless there is insurance to buy capital then the agreement has no meaning. The company itself will be the beneficiary.

How does "key person' insurance work? Let's say when a particular insured dies, she has left a $100,000 obligation to purchase her stock. With her death, the payment for that is created through the insurance payment. Without this insurance, the survivors of this key person could become your new business partners—make sure yo ucan repurchase the stock from the survivors.

Disability Insurance

All businesspeople fears accidents and illnesses that can put them out of commission long-term. Diability insurance acts as an income insurance, and insured parties usually receive about 60% of their average income during recuperation. It's usually recommended that you get this insurance your self and your important employees immediately.

You will have to choose between two types of disability insurance. Short term, which covers twelve weeks to one year, you usually have to wait 14 days; the waiting period for long term insruance (over one year) can be 30 days to a full year. Remember that you can save money on premiums for this insurance by electing the longer waiting periods, as long as it wouldn't hurt your business if something happened to one of the employees or yourself.

Another type of insurance you may want to consider is overhead insurance. This covers business expenses that are ongoing, like loan payments and leases, etc., if the business owner becomes ill or disabled and the business' income is reduced or eliminated.