Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Small businesses are booming across the country, creating new jobs and opportunities. According to the U.S. Department of the Treasury, more than 19 million new business applications were filed between late 2020 and September 2024. And optimism is high; 78% of small businesses plan to grow in 2025, according to a recent Goldman Sachs survey.
These companies are the backbone of the economy, yet many remain unprepared for one of the most inevitable events: the death or exit of a key employee. With 40% of small business owners reporting labor shortages, especially in recruiting and retaining top talent, succession planning becomes even more complicated. Adding to the challenge, more than 60% of family businesses don’t have a succession plan in place, according to PwC’s 2023 U.S. Family Business Survey.
While individuals often focus on wills and personal life insurance, small businesses may overlook a powerful equivalent: a buy-sell agreement funded with term life insurance as a tool for business continuity, acting as a kind of corporate will.
Here are five reasons Term Life Insurance is your small business’s employee of the month.
Dependable in a Crisis
While more than 102 million Americans remain underinsured or uninsured personally, according to the 2024 Barometer study produced by LIMRA and Life Happens, the situation is even more dire in the small business market.
The harsh reality is that only 46% of businesses have buy-sell agreements, and of those, only 35% have life insurance funding (The Piedmont Group Business Owner Survey). Adding to the concern is that many agreements are legally unenforceable, meaning they sit unsigned or without spousal approval. This paves the way for business disputes, unintended partnerships with surviving spouses, undervaluation issues and — most costly — lawsuits.
Plans Ahead
The loss of a founder or key employee can be devastating — but it doesn’t have to mark the end of a business’s legacy. Foundational planning begins with understanding how the business will continue without its leader. A properly valued business paired with a funded buy-sell agreement ensures succession plans can be carried out smoothly when the time comes.
Take a hypothetical company with two partners, Jane and John. They both agree their business is worth $2.5 million. But if John passes away and his surviving spouse believes the business is worth $7 million, she may accuse Jane of trying to buy her out for far less than its value. Without clear planning and coverage, these disputes can drag out transitions, damage relationships and threaten the company’s survival.
High Value at a Low Cost
Term life insurance offers small businesses many of the same advantages it offers individuals: cost-effectiveness and simplicity. It allows businesses to invest in essential protection without tying up capital in expensive permanent policies.
Some of the most common ways business owners use term life insurance include:
- Funding buy-sell agreements;
- Providing key person coverage, ensuring liquidity to replace critical talent like a key operations or sales executive;
- Supporting executive bonus plans and other key person retention benefits; and
- Supplementing or replacing group coverage, especially for highly compensated employees whose needs exceed standard limits.
At the heart of these strategies is peace of mind — ensuring smoother succession, providing protection from forced liquidation or unintended ownership and delivering greater stability for owners, employees and stakeholders.
Communicates Clearly to Get Results
Advisors can play a critical role in helping small business owners prepare for the unexpected. And it doesn’t require a CPA certification or complex spreadsheets — it starts with simple, essential questions like:
“Do you know the value of your business, and is that value key to your future retirement?”
“Do you have a written plan for your business succession? If so, does that plan reflect a current valuation, include modern-day triggers, and have appropriate signatures?”
Advisors are well-positioned to guide these initial conversations. From there, they can connect business owners to support from brokerage general agencies or carriers like Legal & General America that are actively evolving their offerings for the business market.
Improvements include streamlined digital applications; increased financial underwriting flexibility (including key person multipliers up to 20x income); reduced reliance on co-signers and better alignment with SBA loan collateral requirements; market-specific sales consultation; and a dedicated business case underwriting team
Turns Ambitions Into Legacy
In an unpredictable world, having a solid plan in place is not just smart — it’s essential for sustainability and long-term success. As small business clients look toward ambitious growth, advisors have the chance to offer something foundational: a term life insurance strategy that turns ambitions into a legacy.
You can help your underserved business clients and prospects by asking the key questions above. And you can grow your practice by partnering to deliver key business solutions your clients may not even have considered.
Farron Blanc serves as the vice president of brokerage distribution and strategy for Legal & General America. Prior to joining LGA, he served as cofounder and CEO of Gerry, a concierge service that used data to help navigate long-term senior care. He was named to Digital Insurance's 20 Insurance Innovators and Intelligent Insurer's Top 35 Young Executives.
Kelly Bennett serves as the sales vice president – advanced markets development at Legal & General America, with more than 35 years in insurance and financial services. He specializes in life insurance strategies for tax-advantaged business, retirement and advanced planning.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
More Liquidity Topics >
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.