These days, when we don’t know the answer to a question, we often quickly turn to the internet. When someone raises a question in a group, it’s not uncommon to hear, “Let’s Google it.” We’re launching a series of your most-Googled financial questions, answered. Up first: insurance and estate planning. Most people are familiar with these for your personal life, but when you own a business, there are several additional layers involved that are important to consider.
The business owner needs to be concerned with life, health, disability, and liability insurance both for the business itself and personally. I have many business owner clients that have done personal planning, only to borrow a significant amount of money with a bank and that risk is not insured, which can leave a gap in coverage with the death of the owner.
I’ve seen another instance where two business owners had a buy sell agreement in the event of the death. But, that agreement was not funded by life insurance. This left an uncomfortable situation where the surviving owner is dealing with the spouse of the deceased. If you’re in your 50s or 60s, you’re more likely to become disabled and no longer be able to work than you are to die. So, consider insuring your buy sell agreement with disability insurance too, as an added precaution.
For liability insurance, if a business owner has significant wealth inside and outside their business, it’s common for that owner to carry an umbrella liability in the amount of their net worth to protect their assets in case of a lawsuit. That wealth should also be protected against taxes if you exceed thresholds. So, life insurance may be needed in the form of a second-to-die policy between spouses to cover estate taxes.
Another piece of planning is covering the cost of long-term care in your retirement. I’ve seen situations where the cost of nursing home or assisted living care can take a large bite of your retirement nest egg due to lack of planning. Just like you have a CPA to help with taxes, it might make sense to have someone help you determine your insurance planning needs.