For many small- and medium-sized businesses, business continuation insurance serves as a useful element of succession planning and can be a vitally important part of a business continuity plan. Usually consisting of life and disability policies structured to meet the business continuity needs of the owners of a business, should a partner die or become unable to participate in a company’s ongoing operations, these policies are payable per the terms of an ownership transition contract – typically either a buy-sell, cross-purchase or entity purchase agreement. Business continuation insurance is a risk management strategy that enables remaining business partners to move forward.
For businesses with two or more partners, a buy-sell agreement between the owners of a business stipulates how the proceeds from a business continuation insurance policy will be directed. Life insurance policies address the risk of an owner’s death; disability income insurance serves as a backstop in the case of disability.
The point of business continuation insurance is to mitigate the impacts of financial stress and loss of leadership that frequently follow the death or disability of an owner or partner. This insurance should be considered as just one piece of your company’s long-term planning.