Business Uses of Insurance

There are various business uses of insurance. Below we mention some of the more common uses:

Group Term life insurance

Most businesses include Group Life Insurance in their employee benefit packages. These are usually at no cost to the employee with amounts based on a dollar amount or a multiple of base salary.

But-Sell Agreements

Businesses often plan for continuation of the business following the death of an owner, partner or stockholder, by executing buy-sell agreements funded by life insurance.

There are three risks which must be faced by the owner of a business. He or she will suffer death, dissability or retire. Various agreements backed by life insurance may be used to provide for temporary continuation and eventual sale of a business upon the death of a sole proprietor, or the purchase of a business by surviving partners, or the purchase of stock in a corporation when a major stockholder dies.

When a sole proprietor dies, there could follow the abrupt end of income for family members and the forced liquidation of business assets at a fraction of their value. Life insurance proceeds come in handy to pay a competent person to keep the business running pending sale.

Many owners are very specific regarding what they would like to see done with the business at death. If the business is the sole means of livelihood of a number of partners or stockholders, the liquidation alternative is not acceptable unless unavoidable A life insurance policy on the owner can often prevent liquidation and preserve the value of the business until it is sold or passed on to heirs or dependents.

Key Person Insurance

Some employees play a key roll in the operation of a business and are relied on. They provide vision, creativity etc. Their death would be a severe loss to the business. Life insurance can be used to protect the financial interest in these key employes.

Liability Insurance

Businesses buy liability insurance to cover assets such as property and automobile.

Workers Compensation Insurance

Employers are required to purchase Workers Compensation insurance to cover employees injured on the job.

Directors Errors and omission

Employers purchase this insurance to cover claims due to directors and officers errors.