Although life insurance can be confusing for many business owners, it is extremely important in times of need. A properly designed life insurance policy can keep a family business operating, pay the mortgage and estate taxes, and provide an income for a spouse and family. A poorly designed life insurance policy can add to the costs of the estate and result in extra estate taxes or cause the insurance proceeds to be subject to creditors. Therefore, you should review some of the important aspects of your policy now, before your family is forced to do it for you.
Amount of coverage
The type of life insurance policy is not as important as the amount of coverage. Many company owners buy their life insurance coverage based on how much they can afford in premium and not by using a formula.
The amount of coverage for an individual or officer of a company can be determined by adding all debt obligations, mortgages, expected income loss because of lost sales or job opportunities, and any amount needed to fund income arrangements for families.