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Life Insurance for Start-up Business Owners

Life insurance for business owners is common and incredibly important. Business owners may need life insurance on a person key to their company’s future. Business owners may need life insurance to fund a buy-sell agreement should something happen to one of the co-owners. Business owners may also need to use life insurance as collateral to obtain a loan.

In order to be approved for life insurance as a business owner, life insurance companies will want to review a financial history of the company. This will help determine how much coverage the business owner can purchase. It will also help assure the insurance company that the business owner is financially stable enough to keep up with the payments.

So what about start-up business owners?

Start-ups do not yet have financial records or a business history to submit to an insurance company for review. Because of this fact, many life insurance companies are hesitant to approve these applications.

It’s not uncommon for owners of start-up businesses to not take a salary for the first year or so in order to get the business up and running and have the ability to pay its employees. Seeing as insurance coverage justification relies on how much money a person makes, you can see why this situation poses a challenge for many life insurance agents trying to help their start-up clients.

» Compare: Term life insurance quotes

Start-up Business Owners Trying to Secure VC Funding

As a business owner looking to secure venture capital (VC) financing, the investors will want peace of mind and proof that their investment isn’t lost if you died unexpectedly.

Purchasing life insurance on yourself will help you make a case for why investors should put up funds for your idea. There is always risk in investing in new companies, but life insurance reduces this risk—at least a little bit.

But trying to purchase life insurance on yourself when you may not currently be making any income can be a struggle. We’ll discuss this further. Read on.

It’s important to note that oftentimes banks will say that you should name them as a beneficiary of your term policy. Don’t do this.

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Start-up Business Owners Needing Coverage on Owners and/or Employees

When you’re in the beginning stages of getting your start-up up and running, your fellow co-owners and employees are key to the company’s success. If one of these people died suddenly, it may even mean the demise of your company.

One way to help cushion the blow of the death of a co-owner or key employee is to purchase life insurance on these individuals. If they should die, you’re provided funds to be able to cover expenses while you figure out next steps to take and hire a replacement. This strategy is known as key person life insurance.

Another strategy business owners commonly take is to

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