Virtually everyone needs life insurance. But if you’re self-employed, you really need life insurance, even more so than people who are employed by others and are paid a salary. That’s because nearly everything connected with self-employment tends to be more complicated than it is for a salaried person.
The self-employed person simply has more loose ends that will need to be tied up. You don’t want to leave your family having to wrap up those details without providing them with some sort of additional capital to handle whatever might be involved.
Here are some reasons why you really need life insurance if you’re self-employed.
There’s No Employer to Back You Up
When you work for someone else, there’s an organization behind you. When you die, your family may be able to rely on your employer to handle many details, particularly those that are related to benefits. When you are self-employed, there’s often no “second team behind you”. Your family will have to navigate all of the details, and handle each as they come along.
As an employee, your family will not have to be concerned with the impact on the business. But when you’re self-employed there are often obligations and complications that need to be worked out before the family is able to move forward.
What complicates this situation even more is that when you die, your knowledge of the business and its various entanglements will no longer exist. Even if you leave specific instructions for your loved ones, unless they are actually actively involved in the operation of the business, they’ll be stumbling through a process that they do not adequately understand.
Providing them with a large life insurance policy will often give them the time that they need to work out all of the details. It will also enable them to be able to afford to pay outside professionals and other advisors who can help them in the process.
Your Family May Have to Contend with the Survival of Your Business
If it is your intention that your family will carry on your business after your death, they will need additional capital to carry them through the transition. At least some of the money will be needed for their direct survival. But even more will be needed in order to carry the business through the transition.
For example, as the business owner you bring critical skills to your business. That includes sales, marketing, production, troubleshooting, and major administrative functions. If your family lacks many of those necessary skills, either the business income will fall, or they will have to hire outside help in order to fill the gaps.
This will require a certain amount of additional capital, at least enough to tide both the business and your family over until business income begins to increase.
Even if the plan is to sell the business upon your death, there will still be a time between your death and the sale, when bills will need to be paid and accounts settled, even though income has fallen off considerably. A good life insurance policy can provide both the money and the time that will enable your family to sell the business, and hopefully raise more money for their survival.
There May Be Business Debts that Need to Be Paid
Many businesses regularly maintain debt. It could be debt used to purchase equipment, or credit lines that enable the business to survive lean times. Whatever the source of the loans may be, they will have to be paid back upon your death. If not, they can cause serious financial and legal repercussions to your family.
This will be especially true if any of the loans incurred were secured by personal assets, such as a home mortgage or personal credit lines. In such situations, the loan obligations may not cease at your death, and can impair your family’s future.
In addition, the existence of significant debts could result in legal troubles that will make it very difficult for your family to sell the business, or otherwise wind up affairs, in a quick and complete manner. There could be collections or judgments after the fact, or even the possibility that certain liens could make it impossible to sell the business at all.
There May Be Partners Who Need to Be Bought Out
It can be tough enough to deal with a business upon the death of the owner if that person is a sole proprietor. But if there are one or more partners, it could turn into a certified nightmare.
If the other partner (or partners) want to buy your share, the situation should be fairly simple. They can pay your family an agreed-upon price, which will both relieve your family of the business, and provide them with extra money for survival.
Usually in such situations, the partnership maintains key man life insurance, which is taken out on the lives of each of the partners for the benefit of the others. When one of the partners dies, the surviving partners are able to use the proceeds of the insurance policy to buyout the deceased partner’s share from his or her family.
However if no such policy exists, or if your family wants to buyout the other partners, they’ll need capital to do it. In addition, they may need money to pay for legal representation in the event that the other partners want to buy out your share, but no adequate sales price was established in advance.
A good life insurance policy will provide your family with the extra cash that they need to handle these contingencies.
We Can Help You With Life Insurance Tailored For the Self-Employed
Getting life insurance when you are self-employed is more complicated than it is for salaried people. We know what the contingencies are that the self-employed face, and can help you select the right policy for your circumstances.
When you’re self-employed, buying life insurance isn’t all about getting the lowest premium rate. The policy must be designed to provide your family with the resources that they will need to deal with both your death and the impairment of your business.
As life insurance professionals, we can help you get that right policy. Give us a call, and we pledge to work in your best interests. You’re a professional in your business, and we’re professionals in ours. Let us put that professionalism to work for you!