The need for business insurance
You’re working hard to make your business successful. But then something unforeseen happens to threaten that success.
The right business insurance, balancing risk protection and affordability, can help you continue the success from all your hard work.
Types of business insurance
The business insurance you’ll need will depend on the unique needs of your business, but here are some of the most common types of business insurance:
- Business-owned life insurance
- Business-owned disability insurance
- Business-owned critical illness insurance
- Key person insurance
- Insurance for succession planning
- Buy-sell agreement insurance
- Business interruption insurance
- Property insurance
- Liability insurance
- Vehicle insurance
- Employee benefits
Business-owned term life insurance
It’s temporary coverage that provides a one-time tax-free payout if the person who’s insured – you, your business partner or a key employee – dies within the term you choose. It can help your business continue to operate by covering its debt, expenses or a partner buyout.
You can customize your coverage and choose from monthly or annual premiums, which are usually less expensive than business-owned permanent life insurance.
When the term ends, you can renew, or depending on your policy, convert to a longer term or to permanent life insurance.
Business-owned permanent life insurance
It’s lifetime coverage that in addition to providing a one-time, tax-free payout for your business if you, your business partner or key employees die, can help you achieve more with your company’s investable assets.
Over time, your policy may build value, providing your business financial flexibility while you’re alive.
There are 2 types of business-owned permanent life insurance to choose from, depending on your needs: participating life insurance and universal life insurance. Both tend to be more expensive than business-owned term life insurance.
Participating life insurance
- Guaranteed money grows inside your business’ policy
- Conservative asset management
- Policyowner dividends
- Lifetime insurance coverage
- Guaranteed premium options
- Guaranteed payout
Universal life insurance
- Manage your risk profile and choose investment options
- Cost effective
- Payment flexibility
- Lifetime insurance coverage
- Guaranteed premium options
- Guaranteed payout
Business-owned disability insurance
A disability policy owned by your company can provide a monthly payment. It can help keep your business running smoothly and cover expenses if an illness or injury keeps you from working.
While a disability can often be visible to the naked eye, not all disabilities are so easily recognized. Chronic pain or a mental health issue can also qualify as a disability.
You can customize your coverage. If you become disabled, you file a claim, and, after a waiting period, receive monthly payments, which stop when your benefit period ends or you return to work.
Business-owned critical illness insurance
A critical illness policy owned by your company can give your business a tax-free payment if you’re diagnosed with a serious condition. Your contract will define which conditions you’re covered for, but some examples include cancer, heart attack and stroke.
If you’re diagnosed with a serious illness, this insurance can help keep your business running smoothly and let you focus on your recovery knowing your business can continue.
You can choose your coverage amount. If you’re diagnosed with a critical illness, you file a claim. You may have to wait a set period of time depending on your condition. You receive your payment and your policy ends.
Key person insurance
This is insurance a business buys on the life or health of an owner or employee who is essential to the success of the business.
There are 3 types of key person insurance:
- Life insurance
- Critical illness insurance
- Disability insurance
Key person insurance coverage can help:
- Protect your business, if you, or a key employee is suddenly unable to work.
- Secure or pay off a business loan (known as collateral assignment).
- Provide you or your business partner with money to help buy the other person’s share of the business, if 1 of you is leaving. While there are different ways to arrange funding, life insurance is often the most cost-effective, simplest, and most secure method.
- Cover expenses for you or your family if 1 of you is leaving.
Business succession planning
When you’re building and running a business, thoughts of selling it or passing it on to others are often far from your mind.
A business succession plan determines how your business will be transferred to others and outlines the steps necessary to prepare for the transition. The plan affects you, your family, employees, clients, suppliers, creditors and others. A good succession plan helps ensure your wishes will be carried out if you die suddenly or can no longer run your business due to illness or disabling injury. It can also help you ease into retirement and provide a retirement income.
Your advisor can help you create a business succession plan, and ensure you have the appropriate life, disability and critical illness insurance coverage to make it work.
Buy-sell agreement funding
A buy-sell agreement provides the circumstances for 1 partner’s share of a business will be bought by other business partners or the business itself.
The most common events for a buy-sell agreement to take effect are the death, disability or critical illness of a partner.
Business-owned life, disability or critical illness insurance are often used to fund buy-sell agreements. Using insurance helps the surviving partner(s) avoid the problem and costs of borrowing money and lets the business continue to run without costly interruptions.
Property insurance
Property insurance covers the loss of business assets such as buildings, inventory, materials, equipment and furniture due to fire, natural disasters and other unforeseen events.
Lenders often require a business to have this type of coverage when getting a business loan.
Business interruption insurance
While property insurance covers physical assets, business interruption insurance helps you replace business income lost because of theft, fire, vandalism or other specific events.
This type of insurance could help your business cover:
- Operating expenses if you had to move to a temporary location
- Earnings and profits
- Rental income
- Loan payments
Liability insurance
Comprehensive general liability insurance provides coverage for injuries and property damage that happens due to a business’ negligence on its premises or involving an employee. It also covers damage a customer experiences due to a defective product or work by your business.
Professional liability insurance is also known as errors and omissions (E&O) insurance. Some professionals have this coverage to protect them from law suits due to work mistakes.
Vehicle insurance
Any company cars and trucks your business owns require separate automobile insurance. This insurance protects your business vehicles against accidents on the road or lawsuits from accidents, and protects your employees who drive business vehicles.
Small business employee benefits
In a competitive job market, a group benefits plan is a great way to separate yourself from the competition. A benefits plan can help retain staff, improve morale and productivity, and keep your employees healthy and at work. You can provide insurance for life, health, critical illness disability and more for about 1% to 5% of payroll.