March is Your Lucky Month!

In this month’s main video from the Gordillo Law Firm, Greg Gordillo talk about What You Should Know About Life Insurance For Your Business.

Every week, the Gordillo Law Firm provides tips for business owners and families.

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As a business owner, your family members aren’t the only ones who could be devastated by your death. Should something happen to you, your team, partners, and clients could all face disastrous consequences. To address this risk, you should consider investing in life insurance.

👴👵 Life insurance comes in two forms: permanent and term. With permanent coverage, as long as you pay the premiums, your insurance cannot be canceled, and your policy will payout when you die. With term insurance, you pay premiums over a certain number of years, usually 10, 20, or 30, and if you have not died during that period, the insurance ends, and no benefits are paid out.

Term coverage is much cheaper than permanent, and it’s typically used by people who expect they’ll only need insurance for a certain period of time.

Now let’s talk for a moment about Permanent vs Term Life Insurance and Which One You Need?

To determine which type you require, you’ll need to consider several factors. First, let’s look at what are the three most common situations that will indicate that You need life insurance coverage:

1️⃣ Your business will need a cash infusion if you die to keep it running until it can be sold or to buy out a partner.
2️⃣ You have dependents—senior parents, a non-working spouse, or dependent children—who rely on you for their financial needs and who will still rely on you after your death, and you won’t have enough saved up to provide for their needs; and
3️⃣ You have estate taxes to cover upon your death.

In these situations, you will want to make sure you have either term life insurance that will continue long enough to address your needs, or you’ll want to consider permanent coverage.

Permanent Life Insurance policies come in plenty of different types. But generally, they all share these qualities.

They typically have two components: the amount that pays for the life insurance, and the amount that builds up as an investment, or cash value. The cash value portion is invested tax-free, and you can use it in several ways: You can borrow against it, take it as distributions for retirement, or use it to pay future premiums.

There are two caveats: Due to the high commissions, you often need to pay premiums on a permanent policy for 10 to 15 years before there’s enough cash value to borrow against or pay premiums. And you definitely want to either borrow against the cash value or withdraw it before your death, or it gets lost.

Covering Your Expenses
Unlike permanent insurance policies, term policies do not have cash value and do not build up as investments. But term policies are less costly than permanent policies, and term policies can be the better choice for many business owners depending on your particular circumstances. For example, make sure you have enough term insurance to cover the expenses your dependents will require until they are no longer dependents, or until you are certain you’ll have enough money saved to cover their lifetime needs. To determine the right amount of term life insurance, consult with us, as your Family Business Lawyer™ or a fee-only financial planner.

If you plan on staying in your business beyond the typical retirement age, or you’ll have estate taxes upon your death, consider permanent coverage. In that case, make sure you check the recommendations of your insurance agent with us to ensure you are getting the right coverage.

Get a Full Evaluation
Every business has its own unique risks, so there’s no way to know exactly what insurance coverage your company needs without a full evaluation. Before you sit down with an insurance agent, meet with us, as your Family Business Lawyer™, to identify the right types and amounts of insurance your business requires.