Life Insurance for Business Owners [2023]
Quick Facts
Life insurance for business owners protects dependents and business partners by ensuring the business continues to operate after your death
Business owner life insurance quotes average $57 per month
The best life insurance companies for business owners are State Farm and Pacific Life
If you’re a business owner, traditional life insurance may not provide enough coverage to meet your needs. Fortunately, there are many types of term life insurance for business owners, including buy-sell agreements and key person insurance.
This guide discusses business life insurance policies and compares rates to help you find the most affordable option.
Understanding Life Insurance for Business Owners
Having life insurance for business owners will ease any financial burden caused by your death, including supplementing lost income. It can also act as business overhead expense insurance by covering loans, leases, payroll, and employer-provided life insurance (or group life insurance) coverage.
Ideally, business owners will have both a personal and key person policy to protect their loved ones as well as their employees and business partners.
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Life Insurance Coverage Options for Business Owners
Business owners have plenty of options when it comes to buying life insurance. Compare different policies in the table below.
Types of Life Insurance for Business Owners
Types of Life InsuranceDescription
Personal Life InsuranceFor personal debts and family support. Can replace income, pay off personal debts, leave an inheritance, and keep your family financially secure.
Key Man Life InsuranceProtects your business by providing financial support in the event of losing an owner or employee who’s critical to the company’s success.
Buy-Sell AgreementLegally binding agreement between business owners that outlines the fate of the business if one of the owners dies, becomes disabled, or wants to sell their interest in the business. Two main types are cross-purchase and entity purchase buy-sell agreement.
You can choose a term plan, which lasts for a set number of years, or whole life insurance, which lasts the entirety of your life. Most life insurance for business owners is term life.
Business Owner Coverage Options
Type of CoverageDescription
Term Life InsuranceAffordable, flexible and provides protection during the critical years. You can purchase it for business partners as well
Permanent Life InsuranceProvides lifetime coverage as long as you keep up with the premiums. Costs more but the guaranteed payout can be useful. Builds cash value.
Learn more in our term vs. permanent life insurance guide.
Personal Life Insurance for Business Owners
Personal life insurance provides a death benefit to your family or business partners that they can use for business-related or funeral costs. Learn how life insurance works.
However, suppose your family needs the death benefit to replace lost income after your passing. In that case, a separate key man life insurance policy or buy-sell agreement is a more viable life insurance plan for business owners.
Key Man Life Insurance for Business Owners
Key man insurance protects a business from bankruptcy should an essential employee die or become unable to work. The business can buy key person life insurance on you, co-owners, CEOs, and other essential employees.
Since this is a company-owned policy, the business is responsible for making premium payments, not the employee covered by the policy.
Buy-Sell Agreement Life Insurance for Business Owners
A buy-sell agreement is ideal for business succession planning if you share ownership with someone else. It will determine what happens to business shares if one owner dies or decides to leave the business.
Typically, buy-sell agreements do not include life insurance, but you can add coverage in the following ways:
Cross-purchase agreements: Business owners buy life insurance on one another and use the death benefits to purchase shares if one should die.
Entity purchase plan: The business buys life insurance for each business owner and uses the death benefits to purchase shares if one should die.
Learn how to buy life insurance for someone else to see which plan works best for you.
Cost of Life Insurance for Business Owners
Finding cheap life insurance for business owners depends on age and medical history. Monthly rates start as low as $11 for 25 year olds, while older policyholders pay as much as $178.
Term Life Insurance Monthly Rates by Age & Coverage Amounts
Age$100,000 Policy$250,000 Policy$500,000 Policy
25 Years Old$11$13$21
30 Years Old$11$14$22
35 Years Old$11$14$22
40 Years Old$12$17$26
45 Years Old$14$21$34
50 Years Old$18$29$50
55 Years Old$23$39$70
60 Years Old$32$61$87
65 Years Old$44$92$178
Since business owners typically require more coverage in the event of their death, your monthly rates may be higher than average. Keep reading to determine how much life insurance you need.
How to Determine the Amount of Life Insurance Business Owners Need
How much life insurance business owners need depends on the size of the business, any loans or debts, and your personal financial situation. Think about your beneficiaries and who would be financially impacted most by your death.
Use a life insurance calculator to calculate your term life insurance needs and determine how much term life insurance you can buy or if you need whole life.
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Best Life Insurance Companies for Business Owners
Most popular life insurance companies sell key person and other policies for business owners, including:
Haven Life
Lincoln Financial
Mutual of Omaha
Pacific Life
State Farm
Our research finds that State Farm and Pacific Life are among the best life insurance companies for customer satisfaction and price.
Tips on Finding Life Insurance for Business Owners
Follow these tips when shopping for life insurance to guarantee you get the right policy:
Determine how much coverage you need. Consider the amount of debt and overhead costs your business has and family members who are dependent on your income.
Speak with a financial advisor. They can help you understand the tax implications of life insurance for business owners, including when life insurance is taxable and if you qualify for deductions.
Compare life insurance quotes. Getting term life insurance quotes online is the easiest way to compare multiple companies at once.
Use our comparison tool above to start comparing free life insurance quotes today.
Why Life Insurance for Business Owners Is Critical
Business owners should have life insurance to cover business and burial expenses after their death. Term life insurance for business owners is the most popular, but many business partners opt for buy-sell agreements to protect their interests should one partner die or decide to leave the business.
Compare quotes online and speak with a financial advisor before you buy life insurance for business owners.
Frequently Asked Questions
Is life insurance for business owners expensive?
Life insurance rates for business owners are very affordable, starting at $11 monthly.
Why do business owners need life insurance?
Business owner life insurance will protect your family and dependents, including business partners, from losing their livelihood after your death.
Can key person life insurance be taxed?
Yes, key person life insurance rates must be paid with post-tax dollars.
What is a buy-sell agreement?
A buy-sell agreement decides how co-owners buy shares when another business owner dies or leaves the business.
How much key person life insurance coverage does a business need?
How much key man insurance you need depends on the covered employee’s compensation, any revenue the employee directly earns the business, and the cost of hiring and training their replacement.
What happens to life insurance for a business owner if the business gets sold or disbanded?
If the business is sold, the terms of the buy-sell agreement apply, or the new owner becomes the owner of the key person life insurance policy. However, if the business is disbanded or dissolved, you, as the business owner, can transfer the policy to a personal policy.
Can you cash out life insurance for a business owner?
You can only cash out life insurance for a business owner with a permanent policy. Term life insurance does not accrue cash value.
Can the key person for a key person life insurance policy be changed?
Yes, but the business entity that owns the policy must provide proper documentation to the insurer, and the insurance company can deny any changes.
Who files a business owner life insurance claim?
Beneficiaries must file a business owner life insurance claim to receive death benefits. Usually the surviving spouse, business partner, or successor files a business owner life insurance claim.
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Rachael Brennan
Licensed Insurance Agent
Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states.
After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in…
Benjamin Carr
Former State Farm Insurance Agent
Benjamin Carr worked as a licensed insurance agent at State Farm and Tennant Special Risk. He sold various lines of coverage and informed his clients about their life, health, property/casualty insurance needs.
Assessing risks and helping people find the best coverage to suit their needs is a passion of his. He appreciates that insurance was designed to protect people, particularly during times…
Former State Farm Insurance Agent
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