Thousands of people become entrepreneurs and start a business every year. In fact, there have been about 400,000 startups annually for the last decade, according to the Small Business Administration.
Many times entrepreneurs ask themselves these questions: Is purchasing a life insurance policy a good idea for me as an entrepreneur? I am young and in excellent health condition. So, why I would want to invest in an insurance policy?
As An Entrepreneur, Why Do You Need Insurance?
In the life of every entrepreneur, the risk is an essential part. You can lose your money. Also, you will have bad days with failed projects. But all risks can be and will need to be managed somehow including with your health and wellbeing. The only thing that will help you in managing such risks is being insured. This is an entrepreneurial way of thinking.
Life insurance and disability income insurance can be tools that help handle some of those challenges.
You need to take into considerations that without life insurance protection, the unexpected death or injury of some of the founders could crash the company, starting with layoffs and bankruptcy.
A business takes investment and seed money to get going. Many entrepreneurs put up their own assets as collateral for business loans. Sometimes, those assets are central to family members as well. A second mortgage on a home, for instance. Or a loan against a 401(k) account.
All that is well and good if things go as expected and you and your business thrive. But what happens if you get too ill or injured to manage the business? Or worse, you pass away? Such events could have negative implications for the home your family lives in or the retirement funds your spouse was counting on.
That’s why any entrepreneur needs life insurance and disability income insurance. So much of his or her net worth and cash flow is correlated to their business value. And losing that can be disastrous for a family depending on that value.
If your cofounders, co-owners or some key employee is suddenly gone or get sick, the business can decline very quickly. With the right life insurance, the surviving partners will have sufficient capital to keep the business operations while looking for a replacement for the deceased partner.
A buy and sell agreement is a contract that lays out how a partner’s share of a business should be handled in the event he or she passes away. Typically, the agreement provides for the remaining partner or partners to buy out the deceased partner’s share. The death benefit from the life insurance policy can help fund the sale.
Disability is also often overlooked in buy and sell agreement planning, yet the likelihood of disability is far greater than the likelihood of early death.
Indeed, 1-in-4 of today’s 20-year-olds will find themselves unable to work at some point during their career because of an illness or injury, according to the Social Security Administration.
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Certain types of permanent insurance, like whole life insurance, build cash value over time. This cash value can be used at any time and for any purpose.
When you need a short-term loan to cover some business expenses the life insurance can become helpful because you can use your savings as collateral security for borrowing money. If you have an appropriate life insurance policy, you can get finances when you need it.
Did You Know? Many famous brands were actually either started or saved by life insurance! Brands such as:
In the end, life insurance and disability income insurance can serve as versatile tools for business owners and entrepreneurs. In particular, life insurance for business owners can offer protection for family and partners. Life insurance can also provide a useful financial option over time.
The fact is that your family members will have to go on with life without you, but the life insurance policy will make that very rough time period easier for them.