Types of life insurance for self employed & small businesses
Understanding the key types of life insurance for small businesses can help you make the best choice for your needs.
Individual life insurance. If you run a small business with no employees and are the breadwinner for your family, an individual life insurance plan like term life insurance may be sufficient to meet your needs. Individual life insurance plans are popular among small-business owners because they serve both a personal and business purpose. You’ll want to buy enough coverage to manage your personal debts and living expenses for your family, especially if they rely solely on your business income.
Key person life insurance
Sometimes called key man insurance, key person life insurance protects your business if an important employee or business member dies. Some small businesses rely on specific individuals with unique skills and knowledge, like skilled developers, CEOs or spokespersons. Having key person insurance gives you breathing room to maintain the value of your business if you lose an important team member. A key person life insurance policy can cover the expense of recruiting and training a new employee or replace the lost business income that the employee would have produced.
Buy-sell agreement
A buy-sell agreement establishes a clear transition of ownership if a partner dies, retires or becomes disabled. This type of contract provides a framework for co-owners or key employees to buy out a deceased owner’s stake in the business. Business partners may take out life insurance policies on each other as part of a buy-sell agreement so they have the funds to make the business purchase.
Group life insurance
Both large and small businesses can offer group life insurance as a benefit to employees. These policies can be cost-effective for business owners and employees since premiums paid by employers are tax-deductible as business expenses in some cases. Group plans can make coverage accessible to a wide range of people, regardless of pre-existing medical conditions. Plus, offering additional benefits like group life insurance can help you attract and retain top talent.
Getting life insurance as a small-business owner
Nearly 3 in 4 U.S. adults (72%) overestimate the cost of life insurance, LIMRA’s 2025 Insurance Barometer Study found. In reality, a healthy, nonsmoking 40-year-old man could pay $332 a year for an individual 20-year term policy with a $500,000 death benefit.
Follow these steps to insure yourself or your business.
- Decide how much coverage you need. Consider both your personal and business expenses to calculate how much your family or business would need to survive long-term without you.
- Choose a type of life insurance. The size of your business and how you want ownership handled after you die can help you choose among an individual policy for yourself, a buy-sell agreement, key person insurance or a combination of multiple policies. If your situation is complex, consider working with an attorney who specializes in business planning — they will be able to offer guidance and help you protect your interests.
- Shop around and get quotes. Compare life insurance quotes from three to five companies online or over the phone. Working with an agent or broker can help you find coverage and negotiate the best terms for your needs.
No matter how much life insurance coverage or what type you choose, understanding your business’s coverage needs is a key first step for a small-business continuity plan. Preparing your family, heirs and business ahead of time can help everyone feel at ease and confident with your long-term plans.
Give our office today to learn all your life insurance options and free quotes.
