OneInsure Blog
Post By Mariya Panwala
Entrepreneurs and Insurance – Yes or No?
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Entrepreneur Insurance, Business Insurance
Entrepreneurs are risk-takers. Change and uncertainties are part and parcel of their lives. To ensure they persevere throughthe thicks and the thins of the unstable business world, they invest significant time and effort in planning, strategizing, and taking calculated risks to achieve their business goals. This is especially true for young entrepreneurs or those who are new to entrepreneurship. However, there is one risk that most of them do not foresee. The risk of it all collapsing like a pack of cards.
For example, a temporary or permanent disability can ruin it all. In case of a partnership concern, the business may come crashing down if it loses one of its key persons. This will not only have a major impact on the business but also on the lives of the loved ones of the entrepreneur/s.
For instance, the entrepreneur may have taken a business loan. If the business is still in its growing stage and hasn’t garnered enough profit yet, how is it going to pay back its debtors? How are the family members going to deal with this contingency in the absence of a financial backup?
Young entrepreneurs are advised to get insured against these risks—especially the risk of death—to financially safeguard their loved ones and their business. If you’re an entrepreneur, then you can opt for either or both of these options – Life Insurance and Key Man Insurance.
What Is a Life Insurance Policy?
A life insurance policy is an insurance plan that will take care of your loved ones by providing them financial assistance in case of your untimely demise. It will help them pay your outstanding loans, take care of their day-to-day expenses, and help your children pursue the education of their choice.
Under life insurance, you could buy either a Term Plan or an Endowment Plan. A term plan is a pure life protection insurance policy that will be effective in the times of crisis; that is, at the time of the death of the life insured. An endowment plan is a protection-cum-investment plan. It pays both death and maturity benefits.
What Is a Key Man Insurance Policy?
Suppose you run a business whose success undeniably, irreplaceably depends on a few important people in your organisation. And you’re quite aware that it is these individual talents who have made your business climb the stairway to success, and the loss of these employees to life’s uncertainties will probably sink your business. What do you do then to tackle this uncertainty? You buy key man insurance.
In small organisations, key man insurance policies are usually bought for:
- Business owner
- Founder/s
- One or two key employees
So how does the key man insurance policy work?
Under a keyman insurance policy, the company pays the premium and it is the company that receives insurance proceeds in case of unforeseen events, such as the death of the life insured (the key man). These proceeds could be used for the following:
- Help business survive through the loss resulting from the death of the life insured
- Pay for the expenses until a replacement (of the key man) is found
- Pay for the costs incurred on recruiting and training the replacement
- In case the business closes down, the proceeds from the key man insurance policy help in winding up business smoothly by paying back its investors and debtors satisfactorily
If you’re the founder of an enterprise and are looking to buy a key man insurance policy for yourself, then consider the following aspects:
- Your life cover should be able to pay all the outstanding loans that you’ve availed for your business
- It should also be able to take care of your family’s expenses and help them maintain their standard of living even after your demise
Life and key man insurance policies offer peace of mind to the grieving family, the company, and the investors. It builds confidence in them and ensures the continuity of business despite the unfortunate death of the key person/s. For financial soundness and longevity of the organisation, entrepreneurs should consider taking this very important step and protect their loved ones and their company from sinking.
