Protecting Your Business with Life Insurance for Business Partners

Starting a business comes with plenty of risk. Starting a business with a partner can help mitigate this risk. After all, you are splitting the financial commitment and divvying up the responsibilities. But those risks can come roaring back if you or your partner die unexpectedly. Accidents remain the leading cause of death for younger entrepreneurs, but illness can strike at any time as well. Life is uncertain.

How does business partner life insurance work?

Depending on how you have structured and staffed your business, you may have a variety of insurance options. But the most common way business partners use life insurance is for each partner to but life insurance on the other partner, with themselves as the beneficiary.

So, if Partner A passes away unexpectedly, Partner B receives the death benefit for the policy. If Partner B passes away, Partner A gets a payout. This payout can help keep the business going, allowing for new hires to replace your partner’s talent (or yours) or other expenses you may encounter. In some cases, you can also use the life insurance payout to buy out your partner’s interest in the business, which may still belong to his or her family members.

Work with your agent or broker to learn which structures are available and discuss strategies that can protect you and your business partner if the unexpected happens.

Term vs. permanent life insurance for business partners

Term life insurance provides protection for a limited time period. Depending on your age and health, you may be able to purchase coverage for up to 30 years. Because term insurance targets a limited time period, premiums can be more affordable than a permanent life insurance policy. Affordability can be key if you have a new business with limited cash flow and an uncertain future. Consider more than price, though. In the end, your policy should fit your business need.

Permanent life insurance policies include whole life insurance, the most common kind of permanent life insurance, but also includes universal life insurance and other variants. As the name implies, permanent life insurance life insurance does not expire after a term has passed. Instead, coverage continues until the insured dies or until the policy matures, which usually happens between age 85 and 100.

Key person life insurance

In some businesses, it may make sense to insure more than just the partners. For example, if you have an employee without which the business could suffer or even fail, it makes sense to learn about your insurance options. Key person life insurance is a common choice in this situation and can offer an affordable way to protect your business.

Review your coverage needs with your agent or broker

Running a business can pull you in several directions at once but it is important to make time for contingency planning. A loss of a partner or a key person could leave your business vulnerable. Coverage may be more affordable than you might think, and you often have several options for structuring your coverage. If you have not reviewed your business coverage lately or want to learn more about your business life insurance choices, reach out to your agent or broker to schedule a policy review.