Life Insurance is used by individuals for income replacement and for estate planning. Business owners need insurance for similar reasons.
Income Replacement:
If a partner, owner or key employee is suddenly gone, the business can deteriorate very quickly. With the right insurance in place, the surviving business partners will have enough capital to keep the business going while looking for a replacement for the deceased partner or key employee. Insurance industry even has a specific term for this scenario: Key Person Life Insurance (aka Business Partner Life Insurance). If you have one or few employees responsible for over a third of company’s revenue you seriously need to consider Life Insurance on their name with company as beneficiary. In case of their passing business will have enough money to keep operations going full speed while looking for the right replacement.
Estate Planning:
Life insurance is effectively used for business succession. Needless to say, it is essential if a partner personally guaranteed leases or loans for the business. This way surviving partners will have enough liquid assets to cover any remaining debt and will be able to keep business intact. Buy/ Sell insurance agreements are common in the marketplace and can be applied to Term or Permanent insurance policy.
How much to buy? What type of insurance to use? What tax consequences to consider? We will create a custom plan for your business that will answer these and many other questions. Contact us for a free preliminary assessment today.