If you are a business owner, there is a serious risk that your business could be in severe trouble should you or one of the business owners die, become disabled, or seriously ill. There are insurance products available to ensure the continuation of the business in the case of any of these events.
Buy/Sell Disability Insurance
Business owners face the same level of risk for disability a 1 in 3 chance of being disabled before the age of 65.
The disability of a partner can be detrimental to a business. Without insurance, most businesses can be stuck in limbo for years without many options for moving forward and dealing with the total disability of a partner. It can be very challenging to come up with the money to buy out the partner’s shares and negotiations can be a lengthy procedure causing the business to suffer significantly.
How it works:
With Buy/Sell Disability Insurance the Corporation owns a separate disability insurance policy on each partner for the value of their share in the company. In the case of disability of a partner, the lump sum value would be paid to the corporation and can be used to buy the shares from the disabled partner.
Buy/Sell Life Insurance
Corporate Life Insurance is extremely important to keep the stake of the company in the hands of its original owners.
Your business would be at great risk should your deceased partner’s spouse become your new business partner with ownership in the company.
How it works:
With Buy/Sell Life Insurance the Corporation owns a separate life insurance policy on each partner for the value of their share in the company. In the case of death of a partner, the lump sum value would be paid to the corporation and can be used to buy the shares from the deceased partner’s trust.
Business Overhead Expense Insurance
Another way to reduce the financial effects of an owner’s disability on their business is Business Overhead Expense Insurance. With BOE, you choose the level of reimbursement coverage desired (ie $10,000/month) and once the definition and criteria for disability is met, the company will begin to be reimbursed up to the level of chosen protection.
Reimbursement is payable for regular ongoing expenses (usually fixed) such as Salaries, Rent/Lease, Utilities, and Insurance, etc. With the continuation of payment for these expenses the impact of disability on a business can be dramatically reduced and can help the business survive until the disabled owner is ready to return to work.
Key Person Insurance
There are many businesses were the profits and success of the company are attributed to one or two key people within the organization. Given this situation, the survival of the business would be in great jeopardy if the key employee was no longer able to drive in revenue due to a serious disability.
How it works:
Key Person Insurance is designed to replace the lost profits of a company in the event of total disability of a key employee. A key employee must have minimal ownership in the company, must possess unique skills that would be difficult to replace, and must provide work that would cause measurable impact on the company’s profits should they become disabled.
If your business is dependent on the contributions of a key employee, Key Person Insurance should be an integral part of your business plan.