Life insurance isn’t fun to think about, and it may seem like an unnecessary expense. But if you have people who depend on you for financial support, then life insurance is really about protecting them in case something happens to you. It ensures that your beneficiaries will not be left in a financial rut should worst come to worst. It’s a safety net, a life raft, for when things go out of your control. Yet, many people either do not own life insurance or have adequate coverage.
Factually, around 41% of business owners and individuals do not own life insurance, implying they do not have funds set aside specifically for their business and/or financial dependents if the worst were to occur. Entrepreneurs, being a distinct personality type altogether, are dedicated, organized, meticulous, yet impatient. They eat, live and breathe their business, constantly looking for the next breakthrough. Yes, this obsession is necessary for the transformation of an idea into a company, but what happens if that idea is nipped in the bud by the businessman’s untimely demise? Investors, loved ones, partners and staff, while supporting and sharing in the entrepreneur’s vision, would also suffer the most in the event of such a calamity. Without the right kind of life insurance in place, the entrepreneur’s demise or disability could cause layoffs, bankruptcy, and disrupt the whole company.
“I don’t call it ‘Life Insurance’, I call it ‘Love Insurance’. We buy it because we want to leave a legacy for those we love.”
- Farshad Asl, Regional Director of Bankers Life & certified John Maxwell Leadership Coach
Granted, small employers and start-ups rarely place life insurance in their list of top priorities - that spot is taken by the daunting task of starting a business. During these initial stages where time and money are limited, it is often difficult to research and invest in an adequate life insurance plan. For most small business owners, income is not expected, savings are heavily dipped into, and the clock never stops ticking. In other words, entrepreneurs risk A LOT within these first few days, weeks, months, or even years. But placing so much at stake in the short-term should never adversely affect your loved ones or business team. That’s where life insurance steps in, to absorb some of that risk should anything happen to you.
Types of Insurance
Life insurance can be confusing, so let’s bring it back to the basics. There are a few different policies available, depending on the length of the policy. Permanent policies (includes all policies except for Term policies) provide an investment or cash value feature wherein a part of your policy earns interest and will be available for you to borrow or withdraw in the event of an emergency.
- Term: This type of policy is the cheapest and is bought for a specified period of time after which it can be renewed (the older/sicker you get, the higher the premiums). There is no cash value.
- Whole Life: This is a permanent policy that insures you for life, as long as you keep paying the premiums. The premium amounts do not change and there is cash value.
- Universal Life: This policy is similar to a whole life policy except the premium payments are more flexible (you can stop paying premiums for a while if there’s an emergency, provided the cash value can cover the premium payments you’ll be missing), and there is an opportunity for higher savings.
- Variable Life: This policy is similar to the universal life policy, but it lets you have more control over the investment feature. It is riskier though, as it doesn’t guarantee you a cash value (since you may make a bad investment decision which could lead to you losing your money and thus, your death benefits).
The Meaning of “Adequate Coverage”
It is crucial that you know what your company needs so that you can pick the right insurance policy to meet its needs and to cover your family, should the situation arise. The practical businessman knows how and what to anticipate - both the good and the bad. In fact, one of the foundational principles of risk management is to be conservative - that is, to expect less, to expect the worst. Sure, this may seem like a pessimistic outlook for an up and coming entrepreneur to have, but it’s one that can protect any and all who depend on you financially, from family to investors to suppliers. To that end, you should tailor your insurance policy to fit your needs as well as that of your company. Factor in your level of debt, your potential income, your future commitments, and the overall scale of your business.
Measure Your Financial Risk - And Ask for Help if You Need it!
Many of the employers who fall under the 41% category do not have adequate life insurance policies simply because they don’t know how to accurately measure their financial risk. Knowing what to expect allows you to save more and do more, with the assurance that you’re not hurting your family or legacy. For this reason, it’s always a good idea to consult with the experts to determine critical financial measurements, including the overall value of your business. This knowledge will come to the rescue when you shop around for insurance that can adequately cover your company. Several employers suffer enormously when they are underinsured because they either receive no cover at all, or their claim pay-outs are too small and insufficient to help their business get back on its feet.
Today, thanks to technological advancements, it is easier than ever to make the right choice with information available at your fingertips. But being an entrepreneur in our ever-competitive, ever-changing world will always pose a significant challenge, even to the most accomplished businessman. Trust NY Small Health to do the heavy-lifting for you, making sure that your insurance needs are met so that you can focus more of your precious time on the things and people you love. That’s one item you can cross off on your long to-do list.
Talk to an expert today, and ease your worries of tomorrow.