The death of a partner or major stockholder in a business can have devastating effects on both the business and the deceased partner’s surviving family. The business is concerned with gaining control of the deceased partner’s interest at a fair price so that it can continue operations without interference from the surviving family members. The family members are most concerned with receiving as much money as possible for their interest in the business and for capital that may be needed for estate settlement purposes. Here are some possible solutions to help protect your business, loved ones and co-owners/partners.
Buy Sell Insurance
Using insurance to fund a buy sell agreement is a smart business decision. A buy sell agreement specifies what will happen to the interests of an owner, partner or shareholder who passes away or becomes disabled. Life or disability insurance proceeds rather than personal funds or business assets can be used to fund the buy sell agreement.
Key Person Insurance
“Key person insurance can help preserve the value of your business and its continuation in the event of the death of a key person in the company.”
There may be a number of key people responsible for the successful operation of your company. Many businesses have been built around the strengths and skills of a few individuals whose capital, energy, knowledge, or experience makes them a valuable asset to the organization. Key person insurance can help preserve the value of your business and its continuation in the event of the death of a key person in the company. Replacing the expertise and knowledge of an essential individual can take time and money and can jeopardize the continuity of the business. With Key Person Insurance the employer would be the owner and beneficiary of the policy, and the key employee would be the life insured but would receive no benefit from the existence of the policy. The life insurance proceeds upon the key person’s death would be received tax free by the employer and would provide the liquidity needed to hire and train new skilled individuals and provide cash flow through a period of sales decline. Similar type programs can be set up to protect against a critical illness or the disability of a key employee.
Business Overhead Expense Insurance
With business overhead expense insurance, you can be there for your business, even when you can’t work. If your business depends on your ability to generate income to help pay the bills, your absence due to a long- or short-term disability would impact the bottom line. That’s why you need business overhead expense insurance. It’s designed to help businesses with owners/partners who actively generate income (such as physicians, lawyers, accountants and engineers) pay ongoing fixed expenses-like salaries, rent, property taxes and utilities-in the event that a partner or owner becomes disabled and is unable to work.