10.3 Business Uses of Life Insurance
Now we're going to take a look at a few of the advantages life insurance can provide outside of the home. Business continuation focuses on the maintenance of a business in the event of the death or disability of its owner(s). To protect the business in such an event, a plan must be in place to assure the continuity of the business.
In this lesson, we are going to examine three principal types of business structures.
- Sole Proprietorships - Typically small businesses, which have only one owner (the sole proprietor) who makes the decisions regarding the business.
- Partnerships - As defined by the Uniform Partnership Act (UPA), a business partnership is an association comprised of two or more persons to carry on as co-owners of a business for profit.
- Corporations - Regarded as individual by law. Corporations are a company recognized by law as a single body with its own powers and liabilities, separate from those of the individual members.
Which business structure is formed is usually dependent upon advice from professionals such as an attorney or CPA. Utilizing the proper structure must be carefully considered to suit the business goals and objectives of its owners.
A looming issue, one that is sometimes not properly addressed, is what happens to the business if the owner or a key person in the business should suddenly become disabled or die.
- What will happen to the owner's family?
- What will happen to employees and all of those whose livelihoods are dependent upon the continued success of the business?
- What will happen to the business itself?
Even for those with the foresight to make plans for the disposition or continuation of their businesses, circumstances frequently change. Business environments change and family needs change. Not only is having a well-thought-out business continuation plan in place essential, it must also be adjusted periodically as life and economic situations change.
Without proper planning, the business and the family's financial security may cease to exist. Fortunately, there are ways to assure that the business passes to a competent successor, avoiding chaos in the business and at home.
Life insurance is used in business as (1) a funding medium, (2) a form of business interruption insurance, and (3) as an employee benefit.
