Life Insurance for Business Owners: Help Protect Your Business and Future

Reviewed by: Ron Lee, JD, CLU®, ChFC®, CAP®
VP of Advanced Markets at Mutual of Omaha

Estimated read time: ~8 minutes

Summary: Life insurance for business owners offers essential financial protection for your family, employees and business. It may help cover debts, support succession plans and potentially help with long-term stability.

In this article:

• Why is life insurance essential for business owners?
• Can life insurance be an employee benefit?
• Types of life insurance for business owners
• Term vs. permanent life insurance: What’s right for your business?
• Choosing the right life insurance coverage for your business

As a business owner, you have a lot on your plate. There’s the day-to-day of running your business, including work, employees and finances. It’s easy to get lost in the day-to-day chaos.

But it’s important to pause and think about the what-ifs. What happens to your business if you’re no longer there? Who will support your family? Choosing life insurance can help with many of those hard what-ifs.

Life insurance is an agreement you make with an insurance company. It states that the company will pay a specific amount of money to a particular person, trust or charity in the event of the person’s death. But how can that help you as a business owner?

Why is life insurance essential for business owners?

The less worry you have outside of all your responsibilities, the better. If your family and loved ones depend on the income from your business, life insurance can help ensure they have some financial security in the event of your death.

Your family or loved ones can use the death benefit they receive from your life insurance policy in a variety of ways. It could help:

• Cover your final expenses, like funeral costs (which average between $8,000 to $17,500 nationally ¹)
• Pay any outstanding medical bills
• Continue making mortgage payments

It could also be used for business expenses. For example, your family may use the payments toward any outstanding debts you may have related to your business venture.

Another benefit of life insurance for business owners is that it can help your business continue to operate in the event of your death by funding a buy-sell agreement. Buy-sell agreements help you answer key questions like, “What if you or a partner were to die suddenly?”

Can life insurance be an employee benefit?

Offering life insurance to your employees can benefit your business, too. Think about it – it’s not only important for you as the business owner to have life insurance, but it’s important to protect the people who help keep your business running.

Some companies use life insurance to attract top talent and help keep their best employees. In some cases, the business will pay for the policy premiums, but the employee owns the policy. The employee can even use the policy’s cash value toward retirement savings or to pay off debt if it has that capability. Remember, doing withdrawals or loans will reduce policy benefits.

Types of life insurance for business owners

As a business owner, it’s important to understand the different types of life insurance that can help protect your company, partners, employees, and loved ones. Each type of insurance serves a unique purpose based on your business’s structure, size, and long-term goals.

Individual life insurance

This policy is personal, providing financial support to your family or business if something happens to you. The payout can cover personal debts and business-related expenses, such as outstanding loans. Here are a few types that are often considered for business owners:

• Key person insurance – Key person insurance is individual life insurance for employees crucial to your business, including the owner. The business pays the premiums and receives the benefit if the insured employee passes away. This helps manage the transition and helps protect against financial loss.
• Buy-sell agreement – Buy-sell agreements are individual life insurance agreements that dictate what happens if an owner leaves the business, becomes disabled, or dies. Funded by life insurance, the payout can help buy out the departing owner’s share, keeping ownership with the remaining partners and supporting the deceased owner’s family.

Group life insurance

Often offered as an employee benefit, group life insurance can help attract top talent. The business usually covers basic premium costs, with employees having the option to purchase additional coverage.

Term vs. permanent life insurance: What’s right for your business?

When selecting life insurance, consider your goals, budget and the support you want your policy to provide your business. You can think of term life insurance versus permanent life insurance as renting versus buying a home. Term life offers protection during a specific time period as you build your business, while permanent life is long-term and can potentially grow in value over time.

Term life insurance

This type of policy offers coverage for a specific period, usually between five and 30 years. If you pass away during this term, your beneficiaries receive a payout. However, if the term expires before you die, no benefits are paid. Term life is generally more affordable, making it a suitable choice if you seek coverage only during your working years or while repaying a business loan.

Learn About Term Life

Permanent life insurance

Unlike term life insurance, permanent life insurance lasts your entire lifetime, building cash value over time as long as premiums are paid each month.

Key considerations for business life insurance

Before finalizing your choice of life insurance, consider your business’s current debts and financial obligations. Assess how much support your family or business partners would need without you, and ensure you have a succession plan in place. It’s also wise to anticipate how your policy might need to evolve as your business grows.

Choosing the right life insurance coverage for your business

Life insurance is an important step in planning for your what-ifs, whether you are years from retirement or working on your exit plan. With that said, it may not be right for every business and owner.

Ready to take the next steps in protecting what matters most?

Learn the coverage that’s right for you with our life insurance calculator.

Calculate your Need

Frequently Asked Questions (FAQs)

Is life insurance for business owners tax-deductible?

Life insurance premiums for business owners are generally not tax-deductible if the business is the policy’s beneficiary. This applies whether the policy covers yourself, a partner, or a key person at your company.

However, there can be exceptions. For instance, if the policy is part of an executive bonus plan and the employee names a personal beneficiary, the premiums may be deductible. Consulting with a tax professional is crucial to understanding your specific situation under current tax laws, as there is some deductibility and excludability for employees up to $50,000 for group term life policies.

How does life insurance for business owners help with succession planning?

Life insurance is vital in business succession planning by providing the funds necessary for a smooth ownership transfer. If a business owner dies, the death benefit from the life insurance policy can be used to buy out the deceased owner’s share, pay estate taxes, or support surviving owners or family members. This ensures the business continues operating with no need to sell assets or incur debt.

Can life insurance for business owners be used as collateral for a business loan?

Yes, life insurance for business owners can be used as collateral for a business loan, known as a collateral assignment. In this arrangement, the lender becomes a partial beneficiary of the policy. If the insured business owner dies before repaying the loan, the lender is paid first from the death benefits. The remaining benefits are then distributed to the policy’s beneficiaries.

Reviewed by: Ron Lee, JD, CLU®, ChFC®, CAP®

Ron Lee is Vice President of Advanced Markets at Mutual of Omaha. He earned his undergraduate degree in political science from the University of Nebraska at Omaha and his law degree from Creighton University School of Law. Ron also holds the CLU®, ChFC®, and CAP® designations from The American College in Bryn Mawr, Pennsylvania. Ron is a member of NAIFA, the Omaha Estate Planning Council, and Finseca, and previously served as Chair of LIMRA’s Advanced Sales Committee.

Sources:

¹ Funeralwise. “How Much a Funeral Costs and Average Funeral Costs: Your Complete Guide”. https://www.funeralwise.com/plan/costs/, last accessed March 2026

Disclosures:

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Insurance products and services are offered by Mutual of Omaha Insurance Company or one of its affiliates. Home Office: Omaha, NE 68175. Products not available in all states.

397329_0326