Life Insurance for Small Business Owners

Life Insurance for Small Business Owners

Core Facts

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As a small business owner, your family members aren’t the only people depending on you. Your death could be a disaster for your employees and partners, and it could sink the company you worked so hard to build.

That’s the straight-to-the-point explanation of why you need life insurance. But there’s more you need to know.

When faced with the death of a small business owner, it can be the source of great instability. Besides personal loss, it raises logistical questions involving the replacement of key leadership going forward. 

On your own personal end, your family probably depends on your business’ income to survive. What’s more, you may have taken out loans backed by your family’s assets to start or grow the company. But your family members might not be skilled or knowledgeable enough to take over the business if you die. There’s also a chance they might not be able to sell the business. This could leave them without income or even worse in a position to lose their home, if that were used as collateral for a business loan.

Life insurance can provide operating funds during this transitional period and can assist in getting the company through a challenging time. It can also allow the surviving owners to buy the late partner’s shares from his or her heirs. 

In a company that has multiple owners, you can combine life insurance policies in a buy-sell agreement, also known as a buyout agreement. This is a legally binding agreement between co-owners of a business that governs the situation if a co-owner dies or is otherwise forced to leave the business or chooses to leave the business. 

It would stipulate that on the death of one partner, the remaining partners can buy out the surviving family’s share at a previously set price. The life insurance would then pay the buyout. 

There are two main types of life insurance, term and permanent. 

Every individual and family’s insurance situation is unique, so you should consult with an insurance professional for guidance on the best type of life insurance for your personal and your business needs.

Personal life insurance can help your family pay off any business debt and cover living expenses after your passing. Your family would then have time to decide what arrangements can be made with the business. 

Key person life insurance is a type that protects against the loss of a critically important employee. In the event of death, the insurance would pay the owner or owners of the business. 

Small business owners may need several types of insurance policies. David Lerner Associates offers a variety of financial products and services designed to protect your family and business.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website:

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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