Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms. I’m Jeanna and I’m Natasha. Today’s question is: how does life insurance help small business owners? There are three common scenarios in which life insurance is beneficial to business owners. Life insurance can be used as collateral for a small business loan, life insurance can be used to insure a key person, and life insurance can be used in a buy-sell agreement. The old saying “it takes money to make money” couldn’t be more true for business owners. You need funds to start a business. There’s just no way around it. The most common way for individuals to obtain money to start a business is by taking out a loan. The bank or small business administration you get a loan from will want to obviously be paid back. Even if you die, the loan plus interest is expected to be paid back. One way a business owner can ensure this debt doesn’t fall to loved ones is to buy a term life insurance policy in the amount of the loan. The life insurance policy is collaterally assigned to the lender of the loan. If you die before the loan is repaid, this collateral assignment gives the lender the right to receive a portion of the death benefit equal to the amount you owe. The remaining death benefit amount then goes to your beneficiaries. The second way life insurance can help business owners is with key person life insurance. Key person life insurance is life insurance coverage on a person that is key to your business’s success. The business is both the policy owner and the beneficiary. Often within a small company there are certain individuals whom are crucial to its success. Replacing a key person takes time and money and the death benefit from a life insurance policy can help ease this transition. The third common scenario is using life insurance to fund a buy-sell agreement. A buy-sell agreement is a legal contract between two parties which states the buyout details of a share of the business if an owner dies or leaves the business. For example, let’s say there are three co-owners of a business and one of them dies unexpectedly. The ownership interest transfers to the deceased owner’s spouse. Now what? If the spouse doesn’t know anything about running the business they can’t just simply step into their spouse’s shoes. With a buy-sell agreement in place, the surviving owners can buy the deceased owner’s share from the estate. In the buy-sell agreement, the buyout price is pre-arranged. To be effective, the buy-sell needs to have money available for its completion. Life insurance can provide these funds. A company can own life insurance on the business owners or the owners can buy life insurance on each other. Upon the death of an owner, the death benefit from the life insurance policy is used to buy the deceased owner’s share in the company from the deceased’s estate. If you’re a small business owner looking to buy life insurance to secure the future of your business head on over to Quotacy.com and our agents can help. And if you have any questions regarding today’s topic, check out the blog link posted below. Otherwise, tune in next week when we talk about guaranteed universal life insurance. Bye! Thanks for sticking around. We’d appreciate it if you Liked the video and hit that fancy little Subscribe button to see us every week. Bye!