Life Insurance for Business Partners

From single-parent life insurance to life insurance for nursing home residents, life insurance is designed to help protect beneficiaries from financial burdens if the policyholder suddenly passes. Of course, it’s important to understand how life insurance works.

Insurance products are often purchased for the benefit of families, but it also may be advantageous to invest in life insurance for a business. If you’ve co-founded or co-own a business, we think it’s a smart move for you and your business partner to explore life insurance options that could help cushion your company from the blow of losing a co-owner. 

When a key person in a company, such as your business partner, unexpectedly passes away, the subsequent changes can be tricky to deal with. Having life insurance for business partners can help you manage the aftermath. Here’s how life insurance can be useful for business partners:

Business Operations

In some life insurance policies, businesses can be assigned as the beneficiary. This means that if the policyholder dies, the payout is given to the company instead of an individual. The money can then be used to help pay for business expenses, such as any related costs meant to compensate for the loss of a key person.

Buyout Agreements

Life insurance for business partners is often used to fund buy-sell agreements as a way of helping protect one partner if the other one passes away unexpectedly. With these products, the death benefit is used to process the ownership transaction. This makes it easier for the deceased partner’s stake to transfer over to the surviving partner.

Buyout agreements can take multiple forms. For example, there are cases in which the death benefit amount is used to redeem shares or help pay a capital dividend for the purchase of shares from the deceased’s estate.

Estate Equalization

If you own a business with a family member and would like to leave your business to the rest of your family equally, you can typically do so with life insurance. In this situation, you will take out a life insurance policy worth the value of your company and name your dependents as beneficiaries. This doesn’t just guarantee the proper turnover of assets‒it’s also an efficient way of generating wealth for generations to come.

Business partners can typically choose between two types of life insurance categories:

Term Life Insurance for Business Partners

Term life insurance is the most common type of life insurance product.* It’s defined for a specific period, usually between ten to thirty years, with a set death benefit amount. If the policyholder dies within the term, the amount is paid to the beneficiaries. Otherwise, the term policy expires without consequences‒and without a return of any monthly premiums.

Term life insurance is a good option for business partners who want help with financial security at key points of their business journey.

Permanent Life Insurance for Business Partners

Permanent life insurance is a product that covers the policyholder’s lifetime. As long as you pay for your premiums when they are due, your beneficiaries are guaranteed a death benefit payout when you pass. These policies typically come with a cash value component that you can access while you are still alive, which can make it an ideal choice for business owners who want extra liquidity during their tenure.

When choosing life insurance for business partners, it’s advisable to consult with a licensed life insurance agent to find the right product for your business.