Life Insurance For Your Business

As a business owner you are always evaluating strengths, weaknesses, opportunities and threats. It is essential to have a well-conceived risk management program in place. A significant threat many people identify with is how to protect the business against events that may threaten its potential, such as the death of an owner, partner or key employee.

This is considered worst-case scenario because businesses typically borrow money in order to develop the company, and often secure loans with personal assets. What are the consequences to the family, beneficiaries, remaining owners, and clients of the business if an owner were to pass away? You might think that the remaining parties could sell or liquidate the business to cover the debts and provide financial security. In reality, this rarely happens.

When anyone is forced to sell anything quickly, including a business, they will typically sell at a discount or most likely during unfavorable market conditions. In either situation this make the business less attractive. Additionally, most small businesses may be worth very little without the proprietor or partner.

Life Insurance 2.0 can help you protect your family and business by providing coverage to retire debts, replace lost income and fulfill future plans for business continuation in the event that something happens to you.

Life insurance is the most cost effective solution to fund ”buy-sell” agreements. A Buy–Sell Agreement between owners states that the remaining owners are obligated to buy out the deceased owner’s share of the business at an agreed upon price in the event of death, disability or retirement. Insurance contracts are the products that are typically used to complete the transaction.

Why are Buy-Sell Agreements so important?
You might think that if you die, your family could sustain their income by running the business themselves or by hiring someone to handle the day-to-day for them. Your family may lack the skills or the desire for the job, and your partners may not want to be in business with your spouse. With a properly structured and funded buy-sell agreement, your business partners won’t have to scramble to find money in order to buy out your share of the business. With a properly structured and funded buy-sell agreement you have guaranteed that your survivors will be compensated fairly and promptly.

The loss of a key person can also be a major set back for a business.
Imagine the key person being the business development and relationship management executive. This individual is a Rainmaker, the primary driver of new clients and revenue for the business. Loss of this individual will have an immediate impact on business. The end result is lost efficiency and loss of revenue. The loss caused by the death of a key employee creates insurable interest and is now an insurable situation. This strategy will protect the business against significant losses that result from that person’s death or disability. The insurance proceeds can also be used to cover the cost of finding or training a replacement. The amount and cost of insurance needed for a particular business depends on the situation and the age, health and role of the key employee. The policy is normally owned by the company, which pays the premiums and is the beneficiary.