When business liquidation is the only course of action at an owner's death, life insurance can provide the funds that make the difference between a planned liquidation and a financially disastrous forced liquidation.
Consider the uses to which life insurance can be put in the planned liquidation of a business:
Estate Settlement Life insurance proceeds can be used to pay estate taxes and other estate settlement costs, allowing the liquidation to proceed on an orderly basis.
Family Income Using life insurance proceeds to provide the surviving family with a
continuing income can avoid a forced liquidation of business assets for this purpose.
Working Capital If the executor needs additional cash to temporarily operate the
business, life insurance can serve as the source of that cash.
Offset Shrinkage Even a planned liquidation will usually result in some shrinkage in
value, as compared to what the business was worth as a going concern. Life insurance can be used to replace the value lost in the liquidation.
For "pennies on the dollar," life insurance guarantees that the cash needed to avoid a forced liquidation will be available exactly when needed -- at the business owner's death.
Yes, because the chance that you could suffer a loss begins with the first day of business. You can’t get help after the fact. If you suffer a loss and have no insurance or have improper or insufficient coverage, there is very little, if anything, your insurance agent can do to help you. You must be prepared for the risks that are inherent in any business and the losses, sometimes catastrophic, that they can cause.
Also, many states and local jurisdictions require that businesses be insured to
begin operating. And if you rent space for your business, your landlord probably
requires that you be adequately insured as well.
I don’t have any major business assets. Do I need insurance?
Every business has some property. And, in essence, your business is your property. Just like your home and your car, your business needs to be protected from loss, damage and liability. In addition, your business is your source of income, so you need protection from the potential loss of that income.
Generally, there are two types of insurance—property and liability. Property in-
surance covers damage to or loss of the policyholder’s property. And if somebody
sued for damages caused by you or your possessions (other than a vehicle covered by your insurance policy), the cost of the suit—both defending it and settling it if necessary—would be covered by your liability insurance.