Provides Ownership Transition Stability If Owner Is Disabled/Dies
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.
- Term life insurance, permanent life insurance, and disability buyout insurance can all be used in buy-sell contracts
- Cross-purchase agreements direct that individual owners of a business are named as beneficiaries of insurance policies
- Entity-purchase or redemption agreements name the business itself as the beneficiary of insurance policies
Key person insurance also uses life insurance as a business continuation strategy for managing the loss of a person whose contributions are critical to an enterprise. Unlike business continuation insurance, however, it is typically not set up in conjunction with a buy-sell agreement.Read More
Helps Avoid Potential Conflicts Between Owners of a Business
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.
The entire process of creating ownership transfer and financing strategies can give you and your partners the opportunity to set out a clear business succession agreement, and prevent future conflicts and misunderstandings from occurring down the road.Read More