What is Business Insurance?
Business insurance protects against losses associated with unexpected events such as an injured employee, a lawsuit, a death of a partner or a natural disaster. It’s also a broad name for different coverages available to the business owner to protect against losses and to ensure the continuing operation of the business.
Major Types of Business Insurance
Key Person Insurance
- Key person insurance is life insurance on the key person in a business, which is often the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business–the ones that a company can not do without. Here’s how key person insurance works: The company is the beneficiary of the policy and pays the premiums . As the beneficiary of the policy, the company receives the insurance payoff in the event the key person dies.The purpose of key person insurance is to help the company survive after losing the person who makes the business work. How do you determine who needs this insurance? Look at your business and think about who is irreplaceable in the short term. It’s often the owner who holds the company together–he may keep the books, manage the employees, handle the key customers and so on. If that person is gone, the business pretty much comes to a halt.
A buy-sell agreement, also known as a business continuation plan or buyout, is designed to protect a business should it experience an unforeseen circumstance. If a co-owner wants to retire, wants out of the business, goes through a divorce or dies, a buy-sell agreement protect everyone’s interests, setting the price and terms for a buyout. These are binding contracts that dictate when owners can sell their interest, who can buy an owner’s interest and what price will be paid.
Buy-sell agreements can also be used to lower estate taxes in businesses when a co-owner plans to leave the interest to heirs who will remain active in the business. This can help a family business owner pass the business on to children or other relatives without burdening them with unnecessary estate taxes caused by an aggressive value of the business. Choosing a conservative price or valuation formula for the business is key for estate planning in the buy-sell or buyout agreement. The value of the ownership interest at can be legally set an amount considerably lower than its sales value at the time of death.
Buy-sell agreements are usually funded with life insurance because it is the only means of guaranteeing that death, the event which creates the need for cash, also, creates the cash to satisfy that need.
Group Health Insurance
- Group health insurance policies are offered to full-time employees of the company (and sometimes to the employees’ family members) as a benefit of working for that company. Group health insurance plans are a major part of benefits packages .
Group Life Insurance
- Group life insurance, also known as institutional life insurance or wholesale life insurance, is term insurance that covers groups such as company employees, members of a union or association, or members of a pension or superannuation fund. The underwriter of a group plan normally considers the size, turnover, and financial strength of the group rather than proof of insurability.
Group Disability Insurance
- Group Disability Insurance provides income replacement payments to in the event of an eligible disability resulting from illness or injury which is usually either short-term disability (STD) or long-term disability (LTD).