Life Insurance for Business Owners
Protect your business, your partners, and your legacy
For business owners, life insurance serves dual purposes: personal family protection and critical business continuity planning. The right coverage can fund buy-sell agreements, protect against the loss of key employees, provide collateral for business loans, and ensure your company survives and thrives even if you are no longer there to run it.
Why Business Owners Need Life Insurance
- Fund a buy-sell agreement so surviving partners can purchase your share
- Protect the business from the loss of a key person whose expertise drives revenue
- Provide collateral for business loans or lines of credit
- Cover business debts and obligations to prevent burden on your family
- Ensure business continuity during the transition period after an owner's death
- Attract and retain key employees through executive bonus plans
Recommended Policy Types
Key Person Insurance
Protects the business against financial loss from the death of a critical employee or owner. The business owns the policy and receives the death benefit.
Buy-Sell Funded by Life Insurance
Ensures that when a partner or co-owner dies, the survivors have the cash to buy out the deceased owner share at a predetermined price.
Term Life for Business Debt
Match a term policy to the length and amount of business loans to ensure debts are covered if you pass away.
How Much Coverage Do You Need?
Coverage needs vary significantly by business structure. For key person insurance, a common formula is 5-10 times the key person's annual compensation plus a factor for their revenue contribution. For buy-sell agreements, the coverage amount should match the business valuation. Work with both an insurance professional and a business attorney.
Common Mistakes to Avoid
- Not having a funded buy-sell agreement — leading to disputes, forced sales, or business dissolution
- Using personal life insurance for business purposes or vice versa
- Undervaluing key person contributions when determining coverage amounts
- Failing to update coverage as the business grows and valuations change
- Not coordinating business and personal life insurance to avoid coverage gaps
Expert Tips
- Have your buy-sell agreement reviewed by both an attorney and an insurance professional
- Separate personal and business coverage — each serves a distinct purpose
- Review and update key person coverage annually as compensation and business value change
- Consider split-dollar arrangements for executive compensation and retention
- Coordinate with your CPA on tax implications of business-owned life insurance (BOLI)
Frequently Asked Questions
What is key person insurance?
Key person insurance is a life insurance policy that a business purchases on its most valuable employees or owners. If that person dies, the death benefit goes to the business to cover lost revenue, recruitment costs, and transition expenses.
How does life insurance fund a buy-sell agreement?
Each business partner takes out a life insurance policy on the other partners (cross-purchase) or the business owns policies on all partners (entity purchase). When a partner dies, the insurance proceeds fund the purchase of their ownership share at a predetermined price.
Are business life insurance premiums tax-deductible?
Generally, premiums for key person insurance and buy-sell agreement life insurance are not tax-deductible. However, the death benefit proceeds are usually received tax-free. Consult your CPA for specific guidance.
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