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Why Life Insurance Is Vital for Entrepreneurs Without proper life insurance protection, the sudden death or disability of a founder could derail a company, resulting in layoffs, bankruptcy and possibly the collapse of the business itself.

By Michael Carter Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


It may be because we are natural optimists, but it is remarkably common for entrepreneurs not to take out life insurance. In fact, according to LIMRA's Life Insurance Barometer study, 41 percent of business owners and individuals do not have life insurance, meaning they likely don't have the necessary funds earmarked to support their business, employees and their loved ones in the event that something happens to them.

Entrepreneurs have a unique mindset and perspective that sets them apart from other professionals or even artists. Their company is born with a mission in mind, and this creates individuals who tend to be both persistent and impatient, yet disciplined. When launching a business, entrepreneurs are supported by investors, teams and their families who all share in their company's vision, but these groups are also the most at risk should that vision be cut short by an unforeseen event. Without proper life insurance protection, the sudden death or disability of a founder could derail a company, resulting in layoffs, bankruptcy and possibly the collapse of the business itself.

There are various reasons that entrepreneurs may neglect to take out an adequate life insurance plan. Establishing protection for themselves is rarely a top priority when starting a business, as finances are stretched and owners are subject to a never-ending to-do list.

Related: 7 Types of Insurance You Need to Protect Your Business

When I started BizEquity, I was newly married and knew that I was going to be bootstrapping my business. I also knew that, like many other entrepreneurs in my position, at the onset, my income would be non-existent. As with most small business owners, I'd be drilling into my own savings in order to invest in my venture. Yet, I was determined that somehow, some way, I was going to make my business work -- and the only thing that could get in my way was time. In order to feel good about risking my short-term financial future, I knew I couldn't put my new family -- including my wife, dog Briggsy and future children -- at risk.

No one likes to think about the unexpected events that could occur, such as an injury, disability or even death, to yourself or a business partner, but a good business person should anticipate all possibilities whether they are positive or negative. However, we should as entrepreneurs recognize that from the onset we are putting ourselves, our business and our family at risk if we fail to take out adequate insurance. From a business perspective, it's a smart idea to take out life insurance, which can protect your company from financial loss, liabilities or instability in the case of death. It can also assist you in maintaining your business through turbulent times, by providing short-term cash flow, keeping your operations running and suppliers happy.

From a personal perspective, life insurance is one of the best decisions you can make on behalf of your family, yet Deloitte found that only 59 percent of family-owned businesses have a detailed contingency plan in the case of death or disability. In my case, it gave me great peace of mind as I built my business knowing that my family and my legacy would be protected should the worst happen to me.

Related: 3 Expert Tips to Lowering Your Insurance Costs

Just like buying a tailored suit, a life insurance police should be a good fit, reflecting the scope and scale of your business. To that end, when purchasing life insurance, business owners need to evaluate their individual insurance needs based on a number of factors, including their level of debt, income replacement and future obligations. One of the main reasons that U.S. business owners are underinsured and 41 percent don't have life insurance is that they do not know how to adequately measure their financial risk. This is where entrepreneurs should seek help, as being unaware of vital financial measurements, including the value of their business, leads to business owners receiving inadequate cover or no cover at all. What's worse, when a company is underinsured, any claims pay-outs will be insufficient to help get the business back on its feet.

Luckily, advancements in technology and big data now provide business owners and advisors with accurate and reliable business valuations that help to identify an adequate level of insurance coverage. Using digital valuation tools, the industry now has the means to evaluate business valuation data with actual underwritten insurance policies, historical insurance trends as well as the industry's best practice, generating a holistic report.

Related: It's Time to Check Up on Your Insurance Policy

Just as no entrepreneur is the same, no startup is the same. It begins with a thorough understanding of how much insurance they actually need based upon their business value and their equity stake in that business. Armed with this information, entrepreneurs can accurately incorporate vital components into their insurance plan, including buy/sell, key person, life, disability, and property and casualty, to help establish a safe and secure business.

This will also give entrepreneurs peace of mind that their business and loved ones are covered, and provide them with the satisfaction of being able to cross off one more task on that never-ending list of jobs to be done.

Michael Carter

Founder and CEO of BizEquity

Michael M. Carter is the founder and CEO of BizEquity and the inventor of an online valuation service that's helping the small business economy. BizEquity was recently recognized as one of the top 360 companies in the United States by Entrepreneur Media for two years in a row.

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