Owning your own business has many perks and can bring plenty of freedom and success. You may have started a business because you like your independence or you wanted to get rich. You may like a challenge or simply want to build a better mousetrap or mop. Maybe you believe you can make the best pie, computer or automobile and want to share your passion with the world. But will your business alone be enough to take care of your family in the future?
Taking Care of What’s Important
For many of us, owning a business is simply a way of living the good life, following a dream and providing the best for our families. We desire to become independently wealthy and do what we want with our time. Since we are devoted to our spouse and children, we want to make sure our surviving family members can maintain the same standard of living even if we meet our tragic demise prematurely. As business owners, we often make provisions so our business can at least partially subsidize this ideal life in our absence. (For more, see: How to Buy Life Insurance With an Alcohol History.)
However, the business usually cannot fully care for your family in the manner in which they have become accustomed. The full range of family financial needs, such as income replacement, mortgage protection and retirement supplementation, cannot be met through the business alone. There is usually not enough to cover college funding or elder care for senior parents who become dependent, along with regular life expenses. As a result, life insurance is typically used to pick up the slack.
So how can you, as a business owner, ensure that your family is covered? Here are three quick tips for business owners for using life insurance to take care of their families.
Use Separate Insurance Policies
In many cases, the owner and beneficiary of a personal policy are different than for a business policy. A trust may be utilized, and a separate policy is therefore needed. A personal life insurance policy will provide for your family and their future, while a business policy can provide for a buyout if your business has multiple partners. Make sure all your policies are separate and up-to-date so that there is no confusion or legal hold ups if a tragedy occurs. (For related reading, see: What to Expect When Applying for Life Insurance.)
Use Multiple Policies
Most personal financial needs have different timelines. You may need 20 years to plan for college, but 40 years to plan for retirement. Separate policies with various face amounts and different guarantee periods can be employed to provide the exact sum of money for specific needs and further ensure that every aspect of your family’s life is taken care of. Take the time to look at all your family’s needs and determine what is necessary to provide for each one.
Beware of Tax Traps
Business owners like to have the business pay for everything. This practice can be very convenient and beneficial, but you need to know what you’re doing when it comes to taxes. You don’t want to get into a tax mess by using the wrong account for your life insurance payments. Get good tax advice from the right professional and cover your bases.
As a business owner, are you making sure that your family is taken care of? Do you know what type of life insurance you need and how to go about planning for your family’s care?