For a successful company owner, your business is likely one of your most valuable assets. And while you’ve no doubt contemplated what would happen if you or another key person in your company should unexpectedly die or become disabled, how well have you prepared for such an event?
For too many business owners, the answer is “not well enough.” And, business succession is one elephant that’s too big to ignore.
If you have one or more key partners, executives, managers or salespeople who are integral to your operations and your bottom line, losing them could be disastrous. And if something should happen to you or another owner, it could be all but impossible to keep the business going.
So how do you make sure your business can go on after such a loss?
With smart financial planning, you can ensure the continuation of your business and provide financial security for your heirs or your key employees’ families. Consider these two strategies for life and disability protection:
- Key person insurance: Key person or “key man” insurance is coverage for your key personnel. It typically covers the owner, the founders or key employees. The business pays the premiums and is the sole owner and beneficiary of the policy. That means if a covered person is unable to work due to death or disability, benefits are paid directly to the business. Those funds can be used to replace the lost employee, pay business debts or bolster the company’s finances. In short, it can keep the business afloat.
How do you know if you need key person insurance? If the survival of your business depends on key personnel, you should have it. And keep in mind that you’ll need this coverage in addition to any individual life and disability policies because key person insurance protects the business, not an individual.
- Buy-sell insurance: If your partner and co-owner should suddenly die or become totally disabled, will you have the resources to buy out his or her share of the business and continue operating? You will if you have a Buy-Sell agreement funded by Buy-Sell insurance. This type of policy provides funding for a partner buy-out. And purchasing insurance can be your most cost effective option for funding a buy-sell agreement because:
- Benefits are available immediately when death or disability occurs
- Funds to buy the deceased's share of the business can be purchased for pennies on the dollar
- Death benefits are usually income tax free
- Premiums can be significantly lower than repaying interest on a loan
Simply put, a properly funded buy-sell agreement ensures a smooth transition of ownership and will benefit your family, the surviving owners and your creditors alike.
You’ve worked long and hard to build your business, and when you lose a key owner or employee, it’s a heartbreaking and tragic event for everyone involved. But it doesn’t have to be the end of your business.
For smart financial strategies that can keep your business and your legacy alive when tragedy strikes, see the life insurance experts at Higginbotham.