Episode 71: Why Small Business Owners Must Have Life Insurance

Acquania Escarne 0:00

If you're a small business owner and you don't have life insurance, you could be in big trouble. In this episode, I'm gonna share why business owners must have life insurance and how you can get covered today.

Are you an entrepreneur who needs help setting up your business? Maybe you need help understanding which entity you should establish should you be an LLC, should you be an S corp, or maybe you're not sure where to get your tax identification number, or how to get your DUNS number so you can start to build business credit, I have the perfect solution for you my business setup package, you'll get a domain professional email, getting your website going, and even some tools to help you set up your business. But most importantly, you're going to have someone help you set up your entity, virtual address, business, telephone number, branding, and other operating expenses. I don't want the process of setting up your business to stop you from starting today. So feel free to check out bit.ly/bizllcsetup to get started with your business setup package today.

You are listening to the purpose of money podcast, a podcast where we talk about ways to build wealth and create more freedom in your life. Today. I am your host, Acquania Escarne.

Hey, guys, welcome back to the purpose of money podcast, I'm super excited to talk about this topic because I'm a small business owner, right? And I'm also a life insurance producer b ut I want you to know why it's so important for small business owners just like yourself to have life insurance. I think that a lot of us don't fully realize the power in life insurance and what it can do for us after we're gone. But there's also some responsibilities that business owners have while we're alive. And a lot of times we create a business to create freedom for ourselves and to also provide income for our families. And what some people don't know is to grow your business and actually qualify for SBA loans, small business loans, you need life insurance. So let's hop right into this discussion. Because I want you guys to get all the gyms and then take action to get covered.

Now, first and foremost, I want to talk about what is life insurance because sometimes people think they know what it is, they're not quite sure. And they're afraid to ask. So we're going to start out this episode with explaining to you what is life insurance. Simply put, life insurance is a contract between you and a life insurance company that basically says as long as you pay your premiums for the life insurance policy, the life insurance company is going to pay the death benefit. That's cash to your family, or in this organization or wherever you leave the money to after you die. Now there are different types of life insurance, but that's the simplest way to explain it, it is a contract and as such, both parties, you and the life insurance company sign this contract, and as long as you keep up your end of the bargain, they will keep up theirs.

Now you can have two types of insurance or two categories that life insurance falls into. Term life insurance is the most popular, it's the one that basically says you'll have life insurance for a certain amount of time, that could be five years, 10 years, 20 years or 30 years. And if you die within that time period, then your company will pay out the life insurance death benefit to your family. And you are essentially agreeing that I'm paying for this in the event that I die in this term. But one to 2% of term policies are actually paid out. So a majority or not, a lot of people end up living. And what that means is 20 years goes by 30 years goes by, they haven't passed away. You don't get those premiums back, but you also no longer have life insurance once the policy has expired. So alternatively, some individuals will consider getting permanent life insurance, which some types are indexed universal life, whole life insurance, so just to name a few, these are types of life insurance that do not expire. They cover you for the rest of your life. And that means that you could live 20, 30, 50 or 99 years after you sign the contract. As long as you pay the premiums, the company will pay the death benefit. Because permanent life insurance is guaranteed to be paid out, because we're all going to die one day, it does cost more. So term insurance, it's budget friendly, you can get a lot of insurance for a little bit of money. But the statistics show that you're not likely to get that money because one to 2% of term policies are actually paid out. Whereas permanent insurance because it covers you for the rest of your life, it's guaranteed to be paid out, we know that that's going to be paid. So they, the companies charge you a little bit more to have permanent insurance, because they know that one day, they're gonna have to pay that bill. But with that said, you have the option to pick from either those two types, right, the categories. And for most people, I would say if you have a high knee, like a large mortgage, you need to cover off for children as you want to get through school and significant amount of money you want to leave your family, term might be the best place to start. But then eventually, when you have the income, you'll transition to a permanent life insurance policy so that when you live a long life, and then you do pass away, you still have a guaranteed legacy to leave your family. Because one of the biggest benefits to life insurance is that the income is completely tax free, when given to your survivors. So, they're not going to pay Uncle Sam on that money. If you decide you want to leave your family a million dollars, they will get to inherit a million dollars and keep all of it. So that's like huge, because there are not very many tax free vehicles out there that you can pass on to your family members. And they don't owe Uncle Sam a dime. So just keep that in mind. When it comes to this discussion, we are talking about life insurance, the contract that you have between a life insurance provider and yourself. And it doesn't matter when it comes to small business owners, you can have either type, you can have term life insurance, you can have permanent life insurance. The key is how much you have so we're going to talk about that as we continue this discussion. But the reason anyone should get life insurance is to provide for their family. Now, I hear a lot of people say to me, Oh, I don't have kids yet. I don't need life insurance. I'm single, well, the bottom line is I want you to think about your family. And I want you to ask yourself, If I die tomorrow, would my family have the assets to bury me and it not be a burden to them? If the answer to that is no, then you need life insurance, maybe just a small policy, but you need life insurance. If the answer is yes, then I still think it's kind of self assurance back to your family to pay for your final expenses. But if that's your plan, hey, I'm not here to judge you. But if you do have a family if you do have an organization or someone that you want to leave a legacy for, whether that's nieces, nephews, children or a spouse, you definitely want to get life insurance so that I can provide the income that you and your business have been providing to your family once you're gone.

Before I get started, I wanted to let you know that I'm launching two new group coaching programs starting in July 2022. program one is for women ready to work on their personal finances and start building real wealth will meet twice a month for three months, you'll get one on one financial report, which means we're going to go through your finances and figure out where your money's going. We're also going to discuss how to maximize your income now and how to improve your investing and retirement savings for later. Plus, you'll get access to me through an app and have a way to track your goals and progress all with an accountability group. Sponsor unlimited so click in the link in the show notes to apply today. Program two is for women business owners eager to learn and implement creative retirement strategies and build a legacy. If you're ready to learn how to invest in real estate, and leverage your income, business and life insurance, this program is for you. You'll get access to me, my eBooks, and my new course The Purpose of Money Maximizer where I teach you how to leverage life insurance to invest in real estate. This is a six month program, but it will set the foundation you need to level up your business and dive into real estate investing, including investing in hotels and multifamily syndications. If you're interested, please click on the link in the show notes and apply today.

Life insurance can also cover college expenses for your children. It could provide the revenue and the income that your family needs to get that better house or to be able to start businesses in the future or even to pay off the mortgage that you have. If you are the primary breadwinner for your family, it's even more important for you to have life insurance, especially if your business has been the main source of income for your family and how your family survives. So as a business owner, I think it's essential to provide for your family when you're gone and doing it through tax free income, that your family doesn't have to pay taxes on later. Another good reason for a small business owner to have life insurance is to give your family options. So many of us create businesses and we want to have this legacy that we pass on. But not all of our family members actually want to take over the business, right? Some of you may know, either your children are not interested, don't really have a desire, maybe your spouse has their own career, and they have no interest in taking over your business and making it succeed. Life insurance could be what you utilize to keep that business going. Even if you and your family don't have the ability to do it, right. Because you're gone, you've passed away and your family is not interested, you can actually use life insurance as a means to buy out your partner. So for example, there are a lot of people who are individual business owners, you are the bread and the butter, you are the business. But for those of you who choose to expand or to partner with someone, you may have one two or even more business partners who are contributing to the success of the business. Well, life insurance is a great way to to protect their interests and yours in the company. If there are two of you, the insurance policy can essentially replace your interests and what you do for the business when you're gone. So let me give you an example. If you are the person in the business, who does a lot of the forward thinking administrative tasks, you know, making sure you're hiring experts to do the technical side of your business. And maybe your business partner is someone who's doing the connections, getting the funding and investors to keep the business growing financially, you both have significant roles in the success of the business. But if something was to happen to one of you, those roles still needs to be filled, you still need to provide that insight, that foresight that the labor and even the administrative tasks still need to be done. But now one of us passed away, and that task can't be done by you, right? Well, the life insurance death benefit could be the income that is used to hire someone to do that task, right? That could be the money that's used to replace whatever contributions you made to the company. It also can be your family's leverage to get out of the business. There's a lot of business owners who will buy a life insurance policy. And then we'll make an agreement with their business partner, what's called like a Buy Sell agreement. If I pass away, and I die, this life insurance policy will be given to you to replace my role in the business and to make sure that role is fulfilled. But then it gives the partner the ability to sell your share of the business to the family and give them the cash that they need to get out of the business and still live their life. So you're leveraging life insurance to provide a need, which is to replace what you've contributed to the business. But it also gives your business partner the ability to sell your interests or get your family out of the business so that they become the sole owner of the business after you're gone. And they still have the resources they need to continue the role that you used to fail. I think this is a very important aspect of business ownership that you need to think about. It's also the way a lot of companies partnerships, law firms will facilitate covering the interests of a specific business partner, they have life insurance policies on the partners to ensure that their ownership is protected. And it also helps protect the other owners too, because they know that that life insurance policy is going to be the source of income they need to replace your valuable skills and contributions to the company. So just think about that, especially when you kind of see the writing on the wall while you're alive that your family doesn't have an interest in your business or a desire to continue the business or maybe that's just not something they want to do. Maybe they have other aspirations but life insurance gives them options.

But the main reason I wanted to do this episode is because recently I've, you know, seen a very large increase as many of us have in small businesses applying for loans. SBA loans specifically and you know in the pandemic PPP loans were really big and just a lot of funding opportunities for small businesses to get access to capital that they can then use to grow. Most people who have never applied to an SBA loan, do not understand that a part of that loan process is to ensure that the lender is going to get their money regardless of what happens to the business, right or to you. And so one of the requirements that they have for large SBA loans is that you have life insurance. Did you know that?Some people don't some people didn't realize it, but SBA loans have a life insurance requirements, especially if you're getting a larger 200,000 $250,000 loan. And the requirements specifically says if we're going to lend you this money for 25 years, and you have 25 years to pay it back, then you have to have a life insurance policy that covers you for at least 25 years or more. So I have a client, for example, who's just got qualified for a $250,000 SBA loan, and they're gonna give her a 25 year term on that loan. So she has to have a term or permanent life insurance policy, that is $251,000, right? To make sure she covers all of the loan at the beginning of the process. So, I facilitated helping her get life insurance so that she could fulfill the life insurance requirement for the SBA funding. But the reason they do this is because they want to be made whole, they know they're taking a risk on your business and investing in you. And they want to make sure that if God forbid, something happens, and you die, that they are still going to get that money back. So, a lot of times they'll require you to get a life insurance policy, you can get a term policy that covers you for 30 years that would meet the requirements of the loan. Or you can get a permanent policy for the amount that you need and that will cover you for the rest of your life. But during the loan repayment time period, the lender is the beneficiary of the life insurance policy. Or you can set it up in a way where you right language that the money is left to them, you know, in the event that there's still a balance due on the loan, and then after the balance is paid in full, whatever is left is paid out to your family members. But this is real requirements that are given for anyone who's seeking SBA loans, and doesn't have life insurance. So I encourage you to contact me, or another life insurance producer if you are a small business owner who's applying to an SBA loan, and you're not able to meet that requirement for the life insurance portion, because you're not covered, right? This is a great time to get ahead get covered before the application process. Because what you don't want to do is to get approved or almost approved for the loan, and then don't qualify for life insurance due to health or lifestyle issues. Because at the end of the day, life insurance is still a contract between you and a life insurance provider. And they know that if something happens to you, they're going to have to pay out so they're still going to look at your medical history, they're not going to say Oh Acquania is trying to get a loan for her business. So we're going to just overlook her health so that we can give her this policy, because at the end of the day, they still have to manage their risk. And the goal is not to pay out, right? Like they want you to live a long life, they want you to live beyond the term. So that they end up not paying if you do have term life insurance. But if you have permanent life insurance, then no they're going to have to pay but how much you pay for that policy is going to be based on your health. So that's why it's really important that we get covered as soon as we can while we're young, while we're healthy. And then increasing the covers that you have or that you need as you grow. But if you're someone who hasn't got life insurance yet, it hopefully it's not too late for you, it's not too late to inquire and get quotes and then pursue the application process in hopes of a successful approval, right? But I just wanted to kind of give you insight into why small business owners should get life insurance before they start to apply for any SBA loans that can help their business grow, because you may be required to have life insurance in order to get approved for the loan. The other thing I wanted to kind of keep, wants you to keep in mind is that the primary purpose of life insurance is to protect your family. But as I mentioned, for small business owners, there is this nuance that if you're going to get funding from a lender, you also need it to protect their investment in you. So you may have them as a beneficiary in your policy. But you're always welcome to apply for additional insurance so that there's enough money to cover the loan and to still provide for your family's income.

But I definitely want to see small business owners, especially individuals of color to grow and to succeed, and we know that capital is key hanging in helping companies expand. And you do not want to make yourself not eligible for these wonderful opportunities, because you fail to take action and to get covered now. So, if you need life insurance, I encourage you to contact me. At thepurposeofmoney.com, I have a contact page, you can set up a free consultation, we can talk about your life insurance needs and how you can get covered today. If you're a small business owner that's looking for life insurance, and you're also in the process of applying for an SBA loan, contact me thepurposeofmoney.com we can set up a discussion and get you covered as soon as possible. I have some companies that will cover you quickly if you have minimal to no medical history issues. But there are other companies that I work with that might require a medical exam and so those could take a little longer. This is more reason to get covered before you actually need it to get approved for a loan. But you can also talk to a life insurance producer who's licensed for your state, you can look for those who are near you, maybe in your area, but make sure that they have expertise in what they're doing, and that they are able to assist you and look at different options. Maybe you want to compare the rates for permanent and term life insurance to see what's best for you because again, you will never be as young and healthy as you are today. But I don't want you to not get covered. The main key is to get life insurance so your family's protected so your business is covered, and so that you can get access to all the funding and capital that you need.

I hope this episode on why small business owners need life insurance was very helpful to you. Hopefully you learned something new, I love for you to leave us a five star review on Apple podcasts or wherever you're listening. And please feel free to contact me with any topic suggestions, comments about the podcast, and anything you want to chat about. Just send me an email at info@thepurposeofmoney.com. That's info@thepurposeofmoney.com. Until next time, keep building generational wealth.

Thank you for listening to the purpose of money podcast. For more resources and information check out my website the purpose of money.com and while you're there, please sign up for our newsletter so you have the latest information on new episodes and blog posts. Until next time, keep creating freedom in your life today.

Transcribed by https://otter.ai