Legacy Planning for Entrepreneurs: Why Smart Business Owners Invest in Spousal Life Insurance

I harp on about all the many ways that entrepreneurs use Life Insurance.?

It really is one of the most versatile financial protection and legacy-building tools available to us.

You can use it to protect your business, ensure your family has enough and more to go around should anything happen to you, and ensure that the financial legacy you build lives long after you are gone.?

I won’t go into the details here, because I’ve already done that here.?

This article, however, is about one more way that some of the most financially savvy entrepreneurs are using Life Insurance: Spousal Life Insurance.?

Whether the entrepreneur’s spouse is a breadwinner themselves or a homemaker, insuring their lives is majorly underrated.?

Let’s say you’re the entrepreneur in question. You’ve got your Life Insurance in place.?

Should anything happen to you, your spouse and kids stand to receive the proceeds from your policy. You’ve got sufficient cover in place that it would cover all their major outgoing expenses, the big stuff like college funds and the mortgage, and perhaps some more to spare.?

But what happens if your spouse passes away? If they are a breadwinner, then you will go from a dual-income home to a single-income home. And if they’re a homemaker, then, well, in addition to the deep loss and grief of losing your partner, it comes with the added ‘practical’ hole they leave in your life:?

They watched the kids, did the school runs, kept the household running, managed the household staff – not a set of tasks you can just add on to a full entrepreneurial calendar…?

And, of course, there are other reasons you might need to ensure you’ve got the right amount of cover in place for your spouse. Here they are:?

1. Business Partner Protection: If your spouse is also a business partner, the life insurance policy ensures that you, the surviving partner, have the financial means to buy out the deceased partner's share in the event of their death.

This can help keep matters uncomplicated, especially if there are other business partners involved, too. Here’s how partnership insurance works.?

1. Key Person Insurance: If your spouse plays a vital role in your business, their sudden absence could have a significant impact on operations and income. In addition to the possible hit the business might take should you find yourself unable to jump ‘right back in’ after you’ve suffered a big loss.

Life insurance can provide funds to help both you as the business owner and the business itself cope with the loss, and potentially fund the process of recruiting to fill the gap in the organization. Depending on your spouse’s role, this recruitment and training process can be heavy, long and expensive.??

1. Loan Guarantees: If you and your spouse have jointly taken business loans, getting your spouse insured ensures that you are not left solely responsible for repaying the debt in the event of their passing away.?

A Life Insurance payout is often used to cover outstanding loans, mortgages, inheritance tax bills and more, all of which significantly lighten the financial load on the surviving partner.?

1. Estate Equalization: Let’s say you and your spouse are working out how to pass on your estate to your children. You want to pass on the business, some property and your spouse also has property to their name that they want to pass on as a part of the inheritance. If your spouse is also a business partner, then you’re going to want to pass on the collective shares that the two of you own. If you’re passing your estate on to two or more heirs, then ‘splitting’ up these assets can be a hassle – it might mean having to sell them off and then pass on the financial value in that moment, which might or might not be beneficial. A simple way to address this is by using Life Insurance as an estate equalization tool.

Here's a case about how a client used Life Insurance to equalize his US$ 230 million estate.?

And finally, as I outlined above:?

1. Income Replacement: If the spouse contributes to the family income or is involved in the business, their untimely death could result in a financial gap. Life insurance can help replace the lost income during the transition period.

We are often in conversation with entrepreneurs who, for one or more of these reasons, might want to get Life Insurance policies in place insuring their spouses’ lives. But one major reason is that Life Insurance is a powerful savings vehicle, and insuring their spouses' lives in addition to their own is like creating a double-layer insulating their wealth, their estate, and their business.

It’s a way to create an impenetrable, ringfenced cash lifeline that an entrepreneur and their loved ones can draw from during their lifetime and, of course, in the form of proceeds upon the insured person’s death.

But there’s a catch here.

Life Insurance is a purchase with a finite window of opportunity. Not only does it get more expensive to purchase Life Insurance as you grow older, but the option might not be available in the future.?

It is one of those products that you might never need. But (if and) when you do need it, what if you aren’t eligible anymore??

And if you truly never end up needing it, it’s perhaps one of the most ‘reversible’ decisions you will make in your financial plan. You can just pull your money right back out of a Life Insurance policy.

More on that in an upcoming article.

?? P.S. If this has been of value, subscribe here to the LinkedIn newsletter, ‘Life and Life Insurance’ so you don’t miss future editions

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