As a business owner, your business is likely your largest asset. It’s also likely that you take most of your income from your business AND put a good deal of that money back into the business.
If all of that is true for you – are you protecting your business the way you should be?
Here at Consolidated Planning, our planning philosophy is rooted in protecting all that you have today before we can even begin planning for tomorrow.
In this article, we’ll help you understand the 7 types of insurance you should have to adequately protect your income and your livelihood – your business.
7 Types of Insurance Business Owners Need
Insurance will always be one of those things people know they should have but don’t necessarily have. But when it comes to being a business owner, choosing to operate without certain types of insurance can expose you to risks you didn’t even know were there.
#1 Business Liability
Business liability insurance is a type of insurance that helps protect your business from financial losses. It’s possible that a single lawsuit or claim regarding property damage, personal injury, bodily injury, damages, or negligence, to name a few, could bankrupt your business.
Covering potential everyday risks is a great place to start.
#2 Personal Umbrella Coverage
Even though this insurance is not for your business directly, personal umbrella coverage is often encouraged for business owners. This is true for several reasons, including:
- Your personal assets could be at risk with a claim
- You have a higher net worth and increased visibility as a business owner and perceived to have large judgments where a monetary award is substantial (whether true or not)
#3 Personal Life Insurance
Personal life insurance replaces the value of your income. At Consolidated Planning, you’ll find we often shed light on the fact that every single person’s biggest asset is simply the ability to generate income.
Personal life insurance will pay a tax-free death benefit to your beneficiary (usually a spouse or family member) and can do three things:
- Protect family income: This is especially important if your business is your family’s main source of income. Without you, business continuity is impacted as well as the opportunity for a profitable potential sale.
- Pay off business debts: For any of those personally guaranteed business loans.
- Fund a succession plan: For the case in alignment with business goals or even paired with business-owned policies.
#4 Additional Life Insurance
Additional life insurance, yes, additional, protects the value of your business. If you were to retire, you would sell your business and with that its value. BUT, if you happen to not retire, your business can’t be sold. It seems obvious but without additional life insurance by way of a Unilateral Buy-Sell Agreement for sole owners, the value of your business would potentially be zero. Zero.
With a Unilateral Buy-Sell Agreement in place – you, your key employee(s), and your family, have the best chance of succeeding if anything should happen to you. Rather than creating turmoil and stress for your family, this agreement gives clear direction and keeps your business value intact.
#5 Personal Disability Insurance
You are your business. According to Guardian, Disability Insurance replaces anywhere from 60%-80% of your income.
The inability to work as a business owner directly affects your business income and your personal income. Disability Insurance steps in to pay you where your business revenue may not be able to.
#6 Disability Buy-Out Insurance
For business owners with one or more partners, Disability Buy-Out Insurance (DBO) is a must. Not only do you need to protect your family and your business if you become disabled, but you also need to protect your family and business if your partner(s) becomes disabled.
If you are your business – so is your partner. DBO is an invaluable tool for a partner who is unable to contribute. DBO is designed to provide the necessary funds to purchase the shares of the disabled partner, ensuring the continuity of the business.
#7 Overhead Expense Insurance
Business Overhead Expense Insurance (BOE), reimburses business owners for many fixed monthly business expenses. If you are unable to work, you unfortunately can’t put a pause on paying the expenses to keep your business running. This insurance helps cover rent, utilities, property taxes, insurance premiums, and business subscriptions, to name a few.
If you have hope of returning to work in the future, the lights need to be kept on.
Is Your Business Properly Insured?
So, how can you know if your business IS properly insured? Ask yourself these two questions when it comes to your business:
Is my income protected?
Is my investment protected?
If you can’t confidently say YES to both, talk with an experienced business planning advisor at CP about how the right types of insurance work together to protect your livelihood.
Exp. 7/2027
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Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
This material contains the current opinions of Ashby Ware and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
