Throughout much of a business operator's life, the chances that he or she will become disabled are greater than the likelihood of death. However, many more people have life insurance policies than have disability policies.

The first and foremost function of any type of insurance coverage is to insulate the policyholder (you) from some or all of the economic impact of a loss. You pay a relatively small amount as premiums to your insurance company, and the company promises to compensate you if a covered loss occurs, even if the amount of this loss is many times the amount that you paid as premiums.

If you plan that your surviving spouse, family or others will continue to operate your business after your death, you must believe (or desire) that they will be able to do so profitably. The question then becomes whether they can pick up where you left off without a period of lessened profits.

If your business is making money, you should ask yourself whether your spouse, family or dependents will be economically damaged if you are not there to run the business. Unless one or more of these people can step in to run the business at your death, you should think about whether the income from your business needs to be replaced. In doing so, factor in all other insurance that you have on your life and whether your family's expenses will go down if you are no longer there.

In other parts of this discussion, we have dealt with questions about how life insurance may fit into your personal financial situation. Here we will discuss how your need for life insurance may be affected because of ownership of your business. Whether your need will increase will depend on how you answer these questions:

A policy rider is a provision that is added to the basic coverage of an insurance policy, by agreement of the policyholder and the insurance company, often for additional cost. The double indemnity and the waiver of premium provisions are common policy riders.

At the death of the insured, unless another arrangement has been made, the insurance proceeds will be paid to the beneficiary in a lump sum. However, life insurance policies usually give the policyholder (or the beneficiary) the right to choose non-lump sum payouts, known as settlement options. There are five common types of settlement options:

A guaranteed insurability rider gives the life insurance policyholder the right to purchase specified amounts of additional insurance at specified times. It is generally available only if the insured is under 40 years of age, and is less readily available with term policies. The cost of this rider varies, but often is approximately $1.50 per $1,000 of additional coverage. The premium for the added coverage is based on the insured's age at the time the added coverage is acquired.

Participating policies are issued by mutual life insurance companies, that is, insurance companies that are owned by their policyholders, rather than by stockholders. Unlike nonparticipating policies, participating policies pay dividends.

The person who owns the life insurance policy (the policyholder) is named in the ownership clause. The policyholder is usually the same person who is insured under the policy, but this does not have to be the case.

A double indemnity provision is a life insurance policy rider available for an additional premium under which the beneficiaries are paid double the face amount of the policy if the insured dies as a result of an accident rather than from illness or natural causes. The cost of this rider may range from 75 cents to $1.00 in added annual premium costs for each $1,000 in coverage.

Cash value life insurance, but not term insurance, provides that if a premium is not paid within the specified time limit, the coverage may not be terminated. Instead, the insurance generally continues as term insurance for a limited period, which can sometimes run for several years, depending on the amount of the policy's accumulated cash value.

Probably the most important right that a policyholder has under a life insurance policy is to name a policy beneficiary, that is, the person or organization that will get the proceeds when the policyholder dies. Normally, the policyholder may change a beneficiary designation at any time, unless he or she has made the selection irrevocable.

The cash value of a life insurance policy represents the investment component of a cash value policy (such as a whole life policy). The policy will state whether it has, or will have, any cash value. (If it will not, the policy is a term insurance policy.) The cash value should increase each year as you make premium payments, part of which are invested and earn income over time.

Among life insurance policies, only participating policies pay dividends. These dividends are not like dividends on stock, but are merely the nontaxable return of some excess premium by the insurance company based on lower-than-expected mortality expenses (fewer claims than expected) and administrative expenses, and/or higher than expected investment yields. A participating policy will normally describe the five alternatives that can be selected with respect to any dividends that might become available:

In recent years, most insurance companies have included in their policies a provision that permits the accelerated payment of benefits to a policyholder who suffers from life-threatening medical conditions (such as cancer, heart or kidney failure, or AIDS), that will likely lead to his or her death within a specified time period, such as 12 months. If such an option is exercised, amounts paid during the insured's lifetime are treated similarly to a policy loan; interest accrues on the amount advanced, and the policyholder still owns the policy and must continue to pay premiums. Because the amount advanced comes from the "pure" term portion of the policy, both term and cash value policies may be written with an accelerated death benefit provision.

Life insurance policies are complicated things. They use terms and provisions, that are nothing more than legalistic mumbo-jumbo to most of us. Added to this is the fact that there seem to be countless types and varieties of these policies.

Here are some of the most common life provisions and terms that you may find in your life insurance policy. (You may also wish to take a look at our tabular comparison of common types of life insurance policies.)

There is no simple answer to which type of life insurance policy — term or cash value — will be better for you. If you are just starting your business, and have lots of personal financial responsibilities, term insurance may be the way to go. But if you do this, you must remember that the policy will provide no savings for you in the future. The idea that you should buy term coverage and put the difference between the term cost and the higher cash value policy cost into an outside investment just doesn't work for many people: they buy the cheaper insurance, then do not manage to invest what they have saved over the more expensive cash value policies. A good alternative for these term buyers would be to set up an automatic withdraw arrangement under which an amount equal to the "difference" is deposited and invested in an investment chosen by the policyholder (such as mutual funds, etc.). Banks, brokerage houses and insurance companies can set up such an arrangement.

The main advantage traditionally associated with cash value policies is that the premium normally remains level for as long as the insured keeps the policy. (Some modern cash value policies give the insured the flexibility of, within certain limits, changing the amount of money to be deposited into the cash value side fund.) Because of this level-premium feature, cash value policies, which are also known as "permanent insurance policies" have lower lapse rates than do term policies. Once you get used to paying the specified amount each year, you're more likely to keep paying and thus keep the policy in force.

The primary advantage of term life insurance is that it requires a low cash outlay. This is because the term policyholder is paying only for the pure insurance protection, rather than term plus an additional amount to go into a side fund (cash value) that will be invested within the policy.

Life insurance policies can be divided into two main categories, term insurance and cash value insurance. A brief discussion of each, and their relative advantages and disadvantages, follows.

Employers with 100 or fewer employees who received at least $5,000 in compensation during the preceding year may adopt a simplified retirement plan, the Savings Incentive Match Plan for Employees (SIMPLE plan). If you want to establish a SIMPLE, it must be the only retirement plan you have — if you've already established another plan, you'd have to terminate it or convert it to a SIMPLE.

Life insurance is among the most useful, and most maligned, of all things that you will ever buy. If properly fitted to your needs and offered at a competitive price, life insurance offers important advantages, including:

Between now and your retirement date, you should aim to save and invest so that you can bridge the gap between your retirement needs and your targeted retirement nest egg. To begin, you must start saving now.