Last year, 54% of American people were covered by some type of life insurance. This is largely due to the fact that Americans overestimate the cost of life coverage.
Everyone should have a life insurance policy but business owners especially need life insurance. Not entirely convinced? Read on to learn the reasons why you should get life insurance now.
1. Income Replacement
If you’re a business owner whose family relies on your income to survive, you need life insurance. With your insurance plan, your family will have the money they need to take care of themselves after you’re gone.
A life insurance policy with a death benefit can cover your salary and other household contributions. There are different types of life insurance policies out there with different amounts.
To decide how much you’ll need to replace your full income, consider the following expenses and debt:
- Credit card debt
- Dependents (children and aging parents)
- Future cost of college education for your children
- Student loans
- Spouse’s retirement
If you have other expenses like child support payments, total those in as well. From there, you can find a plan that covers you for everything you are worth.
2. Collateral Coverage
One of the major benefits of life insurance for business owners is that it can be used as collateral coverage. This means you shouldn’t exempt business debt from your expenses when deciding how much coverage to buy.
If you used your personal property as collateral to secure a business loan, a personal life insurance policy is essential. If you were to die before the loan was paid off, your family could lose their savings or home.
Along with your debts, always include your business debts to supplement your debt and income replacement if you were to die.
Having an insurance policy in the right account can provide an inheritance for your heir when you die. For example, a 770 account allows you to grow the savings from your insurance policy tax-free.
Many purchase life insurance because they intend to leave the death benefit behind. You can name a chosen heir as the beneficiary on your policy. This ensures the benefits will fall into the right person’s hands.
If you don’t have a family member to leave benefits to, you can add your favorite charity as the beneficiary on your account. The benefits will then be provided to the charity of your choosing.
Do You Need Life Insurance?
Many business owners and entrepreneurs have debts and responsibilities they’ll have to take care of even after they pass on. If you want to avoid leaving those debts to your family, you need life insurance.
There are many benefits of having a life insurance policy, but the above three are the best. If you’re in the market for life insurance, search around for different policies before making a final decision.
Looking for additional articles on insurance policies and other personal finance advice? Check out our blog posts for more.