What is Business Insurance?
Business insurance is a term used to describe a range of products bought by and designed to protect a company. Certain types of life insurance, general liability insurance, and commercial property insurance might all be part of a business insurance portfolio, for example.
Common types of business insurance
There are several different business insurance products available today to protect companies and their owners. Those include:
General liability insurance. This coverage steps in if the company gets held liable for a loss, covering both court costs and settlements up to the policy limit.Commercial property insurance. These policies generally protect the place of business and the equipment stored in it.Business income insurance. If the business suffers a covered loss and is consequently unable to operate, this coverage can help make up for lost income.Commercial auto insurance. This is auto insurance for any vehicles the company owns.To bundle commonly needed insurance products together, many insurance providers also offer a combination product called a business owner’s policy (BOP).
You might notice that some of the business insurance types have mirrors in the personal insurance space. Commercial property insurance functions a lot like home or renters insurance, and commercial and personal auto insurance are pretty similar, too. In other words, if there’s an area you need to protect in your personal life, you probably need safeguards for it in your business, too.
And that’s particularly true for life insurance.
Life insurance as part of your business insurance portfolio
Because insurance is designed to help people prepare for the unexpected, it’s important to think through unwelcome circumstances that could endanger your business. That includes the loss of an owner or critical personnel.
With that in mind, there are two areas in which many business owners choose to add life insurance to their overall business insurance coverage.
Funded buy/sell agreementsIf you have a business partner and they passed away, what would happen to their portion of the business? You might assume that their heirs would happily pass control over to you, but that’s not always the case.
To ensure no messiness ensues, many business partners establish a buy/sell agreement. This agreement stipulates that if one partner dies, their portion of the business automatically goes up for sale, to be purchased by the remaining partner.
The issue, then, is paying for that purchase. To resolve that, many business partners take out life insurance policies on one another with the primary purpose of funding the buy/sell agreement.
In other words, with life insurance on your business partner, should they pass away, you get that policy’s death benefit. Then, you can use that money to purchase their portion of the business, giving their family a sum of money to ensure their comfort while also ensuring that you maintain control of the business. Plus, all of this is accomplished without you needing to dip into your personal savings account or your company coffers.
Key person insuranceYou most likely have people who play essential roles at the company, including yourself. Beyond you and other companies owners, that may be a top executive who oversees operations, troubleshoots issues, develops strategies, or is responsible for scaling the business.
Ultimately, you may have someone on staff who wouldn’t be easy to replace. If your business would suffer financially without them, you may want to consider key person insurance. These life insurance policies pay out when the named key person dies, issuing the death benefit to the company.
That money can serve as a bridge as you navigate the potentially challenging waters of replacing that person. It could help fund an aggressive headhunting campaign while making up for lost revenue in that person’s absence, for example.