When You Need Business Life Insurance, Which Should You Choose? A Term Life or Permanent Policy?
Every business is unique and so it goes without saying that the insurance needs of every business owner, partner or employee will vary too. With that being said, there are some factors that can help you decide which type of policy is right for your business life insurance needs.
Should you buy a term or permanent life insurance for your business?
So, term life or permanent? This all depends on one thing. How long do you need the coverage? If a bank is asking you to provide life insurance to back a business loan and they only require you to have it for a certain length of time the you may be able to get away with buying a term policy. Many businesses will be immediately drawn to term life insurance because it is the least expensive of the two insurance options. The thing about term life, however, is that there may be no way for your business to recover the cost of the insurance policy, if the insured does not die within the insurance policy’s term, and the premiums most likely aren’t tax deductible either. This means the business could be paying out for a life insurance policy from which they may never recoup any of their money.
Times when you might use a Term Insurance Policy for your Business:
- When you are covering key employees
- When you are covering a short term business loan
- You are just starting and have a limited budget but need some life insurance in place
Now if you are buying a business life insurance policy for other reasons like a business continuation plan or a buy sell agreement you will need a permanent life insurance policy in place for the business. This is one major reason someone will choose the permanent route for their business life insurance needs.
Because a permanent policies build a cash value over time, the business will be able to at least gain that sum of money at some point, regardless of whether or not the insured dies. In some instances, business owners will use a permanent life insurance policy as a way to supplement their retirement or to offer this as an incentive to a key employee. It can also be a great way to have cash value for temporary and short term cash needs for a business.
Times when you might use a Permanent Insurance Policy for your Business:
- When you are using the policy for business continuation purposes
- When you are using it for an Executive Bonus
- When you are setting up a deferred compensation plan
- When you set up a buy/sell agreement for your business
Alternatives to permanent life insurance for a business owner:
The only problem with permanent life insurance policies is that they can be costly and not every business will be able to afford the premiums. In this instance, there is the option of return of premium term life insurance. With return of premium, you will pay more in premiums but you mitigate the downside of regular term life premiums, which is that you may never recoup any money from your insurance investment if the insured doesn’t die within the term. With return of premium, if the insured survives the term, the amount of money paid in premiums is returned to the business.
We can help set up up a plan for your business.
We have specialist who can plan with your team to make a plan that is right for you. The only way to determine which option is best for your business is to evaluate the business’ needs and budgetary restrictions and to then weigh your options.
Either direction you turn a business life insurance policy will make sure your company will have a continuation plan in place so your business will survive in the event of a death of the business owner.