What Small Business Owners Should Know About Life Insurance

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As a small business owner, you may be responsible for the livelihood of one, several, or many employees who work for you. A life insurance policy can help you protect your business should you pass on unexpectedly. You can keep your legacy intact, and ensure your employees are still able to carry on your business.

Life insurance is also good for small business owners whose families rely on their income. Here’s what to know about life insurance for business owners.

Why Life Insurance for Business Owners is So Important?

There are several reasons why business owners should consider taking out a life insurance policy. One is to protect the business. If you die, life insurance benefits can be used to pay off outstanding business debt.

If you used personal assets, like your home, as collateral for a business loan, you need life insurance so that your family doesn’t lose their home because they can’t afford to pay back the loan. Life insurance benefits could also be used to keep the business up and running until your family determines what to do with the business.

Business owners can also purchase term life insurance and name their company as the beneficiary. This helps a business stay up-and-running with the capital it needs to operate.


If your income from your business supports your family, life insurance is also important to have so that they can continue to be supported in the event that you die.

Life insurance can also help business owners who are in partnerships. Business owners in a partnership can combine life insurance policies with a buy-sell agreement. The agreement states that if a business owner’s partner unexpectedly dies, the other partner(s) can buy out the surviving family’s share. The life insurance can be used for the buyout.

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Business owners can also take out a term life insurance policy or permanent life insurance policy and use that as “key person insurance,” which means the policy can pay out benefits when an essential person to the business passes on. This type of policy gives business owners resources as they replace the employee.

Types of Life Insurance for Business Owners

Business owners often buy several types of life insurance policies: both personal and business-related. Personal life insurance helps business owners ensure their families are taken care of, while business-related life insurance policies can help with items like:

  • Surviving business partners buying out the deceased’s business ownership share
  • Paying off business debts and expenses
  • Staying afloat as the business looks for a replacement or pivots its business model
  • Business owners have a few types of life insurance options.
  • Term Life Insurance

What Small Business Owners Should Know About Life Insurance

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What Life Insurance Should Business Owners Get?

When you’re considering life insurance for business owners, you may want to get multiple types of policies. Some business owners take out both term and permanent life insurance policies for their families and their business. What combination works for you will depend on your business structure and financial needs.

Talk with a certified financial planner about what finances need to be covered in case you pass on. Use that information when talking with a life insurance representative to determine the best coverage for you as a business owner.

Permanent Life Insurance

With permanent life insurance, as you pay your insurance premiums, you also grow a cash value portion that can be used for withdrawal while you’re still alive. Permanent life insurance policies can stay effective for a lifetime.

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You choose how you want to invest your cash value, or you may be able to borrow against the investment portion if you need funds while you’re alive. Upon the policyholder’s death, the beneficiary receives both the life insurance benefits and the cash value.

Some business owners plaN. If this is the case, permanent life insurance may make sense. What Small Business Owners Should Know About Life Insurance


Term life insurance can be used among business partners. Each partner would purchase a term life insurance policy and name their partner the beneficiary. If one owner dies, then the beneficiary would have the funds to buy out the portion of the business from the deceased partner’s heirs. In this case, if you know a partner is planning on retiring in a certain amount of years, getting term life insurance coverage through to their retirement may make sense.