Do You Need Small Business Life Insurance?
- Brian Bohnsack
- May 12
- 6 min read
Updated: May 15
Do I need small business life insurance? Small business life insurance can offer a strategic layer of financial protection, giving you confidence in your plans for the future. From sole proprietors to partners in fast-growing companies, small business life insurance can aim to offer stability in a time of instability.
In businesses with multiple owners, it's also wise to consider a buy-sell agreement in case of an unexpected death. This can allow remaining partners to purchase the deceased owner's shares without placing a financial burden on family members.
Brian attained a bachelor’s degree in accounting, earned his FINRA series 7 and 66 securities registrations through LPL Financial, and carries life and health insurance licenses. Brian has a wide range of experience in financial services, accounting, and management. He loves working directly with his clients to help them learn more about their goals and dreams and educate them about financial planning and investing.
As a business owner, you've worked hard to build something meaningful — something that supports your family, your employees, and your legacy.
But what happens to your business if the unexpected occurs?
Small business life insurance can offer a strategic layer of financial protection, giving you confidence in your plans for the future.
Does Your Small Business Need Life Insurance?
Interest in life insurance is rising. Research shows that 39% of consumers say they plan to purchase a policy within the next year.
For small business owners, a life insurance policy can serve as an essential safety net. Whether you're a sole proprietor or running a business with hundreds of employees, coverage can provide a death benefit to support business continuity, repay debts, or help the deceased owner's estate.
Some policies also build cash value, offering a financial cushion for retirement or other long-term needs.
If your absence would place your company at risk, small business life insurance may be an essential part of your business financial planning.
Who Needs a Small Business Life Insurance Policy?
Not every company is the same, but many business owners share one thing in common: they seek to ensure that their loved ones and their business are protected.
From sole proprietors to partners in fast-growing companies, small business life insurance can aim to offer stability in a time of instability.
In businesses with multiple owners, it's also wise to consider a buy-sell agreement in case of an unexpected death. This can allow remaining partners to purchase the deceased owner's shares without placing a financial burden on family members.
How Small Business Life Insurance Aims to Protect Business Owners
Life insurance is more than a personal safeguard.
It's a smart way to protect your company's well-being. Whether you're looking to retain top talent with group life insurance or protect essential employees through key person insurance, the right plan offers confidence in financial security.
Key person life insurance, for example, can offer the business a financial cushion if a senior vice president or top talent in a critical role passes away unexpectedly.
That money can help fund a replacement search or keep the business running smoothly.
Insights from Mike Rogers, Founder of 360 Financial
“I always tell clients: the estate tax code changes, your portfolio changes, your life changes. If you’re not updating your net-worth snapshot every year, you’re flying blind. One year you might be under the exemption — the next year the market goes up and you’re well over. Or you bought a life insurance policy that suddenly ballooned the size of your estate. Or the IRS moved the goalposts again. You need to plan from where you are, not where you were two years ago.” |
What Kind of Life Insurance Should a Small Business Owner Have?
There isn't a one-size-fits-all solution, but here are four common types to consider:
Term Life Insurance
Term life insurance is a cost-effective option for business owners who need coverage for a set period, such as 10, 20, or 30 years. It's often used to cover business loans, operating expenses, or personal obligations during key growth phases.
Permanent Life Insurance
Permanent life insurance, including whole and universal policies, offers lifelong coverage with a cash value component that grows over time. Business owners may use it for legacy planning, tax-advantaged policy loans, or future expenses like long-term care.
Key Person Life Insurance
Key person life insurance seeks to protect the business financially if a top executive or an essential employee dies or becomes disabled. The company owns the policy and uses the death benefit to offset losses, fund recruitment, or maintain operations.
Buy-Sell Agreements
A buy-sell agreement funded by life insurance aims to provide the surviving business partner with the funds to purchase the deceased owner's estate share. This helps protect business shares, reduce disputes, and facilitate a smooth ownership transition.
Work with a Life Insurance Specialist
Choosing the right business life insurance policy can feel time-consuming, but with the right advice, it becomes part of a long-term strategy that protects your legacy.
Speak with a financial advisor or business wealth advisor who understands the unique needs of business owners and entrepreneurs.
Common Questions About Small Business Life Insurance
Can I get personal and business life insurance as a small business owner?
Yes, you can have both personal and business life insurance.
Personal life insurance protects your family, while business life insurance protects your company’s financial interests. Planning both carefully with a cross-border financial advisor pursues proper coverage without overlaps or tax issues, especially if you live or work internationally.
Is it possible to get insurance for key employees?
Yes, you can buy key person insurance to cover important employees.
This type of insurance protects your business financially if a key employee dies or becomes disabled. It helps keep operations running and reassures clients, lenders, and investors about your company’s stability.
What is key person insurance?
Key person insurance (also called key man insurance) is a life insurance policy a business buys on a critical employee or owner.
If that person dies or becomes disabled, the business receives a payout. The funds can cover hiring a replacement, paying off debts, or maintaining operations during a difficult transition.
How much does life insurance cost for a small business owner?
Life insurance costs vary depending on your age, health, the type of policy, and coverage amount.
A healthy 40-year-old might pay around $30 to $70 per month for a $500,000 term policy. Permanent policies are more expensive. Work with an advisor to tailor coverage to your business needs.
Can a small business write off life insurance?
Generally, if the business is the policy owner and beneficiary, life insurance premiums are not tax-deductible.
However, if used for employee benefits like group insurance, premiums might be deductible. Tax rules are complex, so it’s critical to get advice from a cross-border tax professional for your situation.
What insurance do I need to safeguard my small business?
Small businesses typically need life insurance, key person insurance, liability insurance, and property insurance.
Each preserves different aspects of your business and your financial future. Working with a professional advisor seeks to ensure you get the right coverage tailored to your business’s specific needs and potential risks.
Is group life insurance a good option for small business owners?
Group life insurance can be a great way to offer benefits to employees and preserve your business.
However, it’s usually not enough for the owner’s needs. Business owners often need individual policies in addition to group plans to cover personal and business obligations fully.
How much does a $1,000,000 life insurance policy cost per month?
For a healthy person in their 40s, a $1,000,000 term life insurance policy might cost between $50 and $150 per month.
Costs vary widely based on health, policy type, and term length. Permanent life insurance policies are significantly more expensive but offer lifetime protection and cash value growth.
What is the difference between individual, group, and business insurance?
Individual insurance covers a single person’s life or needs.
Group insurance offers benefits to employees under one plan. Business insurance includes policies like key person insurance or buy-sell agreements, preserving the company’s financial health. A well-rounded strategy often involves a mix of all three types.
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About the Author
Brian Bohnsack, AIF®
Brian attained a bachelor’s degree in accounting, earned his FINRA series 7 and 66 securities registrations through LPL Financial, and carries life and health insurance licenses. Brian has a wide range of experience in financial services, accounting, and management. He loves working directly with his clients to help them learn more about their goals and dreams and educate them about financial planning and investing.
About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
