If you are starting a business you will either need buy/sell life insurance for a partnership or key man life insurance for sole proprietor. Start ups can be tricky. You must calculate the capital infusion and sales if any. You may need a third party audit to place a value on your business. Once you have that number, that should be near your face amount or in partnerships valued equally divided by the percentage of ownership. You may want to save money and start off with a 10 year term and repurchase in a couple of years once annual sales are established. Good luck and congratulations!
That is a great answer Tim. I would only add that if a startup founder is concerned how much life insurance he or she should have then another thing to consider would be what the need at home is. As Tim pointed out, having enough life insurance to cover you as a key man or to pay for the business through a buy/sell agreement is a good idea. However, assuming the founder has a family, and if the startup founder does not have life insurance, then starting with life insurance to cover the needs of your family should be your number one priority. Once the business gets up and running you can either take out more coverage or replace your existing coverage. However, take care of those who you value most first.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The start-up founder of a company lives in two worlds. One is the personal world of his family. His obligations there are great but different from those of a business head. Most companies need capital to start and expand their business. They will approach a bank or private lender and often will be asked a question about their life insurance.
If a start-up business loses the founder in the early days it is difficult, if not impossible for the business to survive. Any lender will want enough life insurance to make sure that loans and obligations are paid. If the loan being made considers the founder a vital asset of the company, they will require life insurance with and that they are named as additional insureds to the amount of the loan being made.
If the founder also is the “secret ingredient” in the business any lender will require life insurance to make sure that there is sufficient capital to replace that individual. Companies often fail when key people die. One of my clients was murdered and in a few months the business collapsed.
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If a start-up business loses the founder in the early days it is difficult, if not impossible for the business to survive. Any lender will want enough life insurance to make sure that loans and obligations are paid. If the loan being made considers the founder a vital asset of the company, they will require life insurance with and that they are named as additional insureds to the amount of the loan being made.
If the founder also is the “secret ingredient” in the business any lender will require life insurance to make sure that there is sufficient capital to replace that individual. Companies often fail when key people die. One of my clients was murdered and in a few months the business collapsed.