Small business is the backbone of our country’s economy and for most of us, even more importantly, it is the backbone of our personal budget. Without those paychecks in today’s job market we would indeed be up a creek. So, have you asked your boss, the owner of the company, the writer of those checks, what happens if he or she dies? Is there business life insurance in place?
It’s called succession planning and most small businesses are so focused on the day to day challenges of running a business, the sales, delivery, and service stuff, that planning for disasters is not real high on the agenda. I’m certainly not bad mouthing those business owners who haven’t planned because I know the reality of your workload. I know how every hour you can work and every dollar you can bring in can be eaten up holding on to the status quo. Where are you going to find the time to plan and the money to fund a plan? Do you even care what happens to your business after you die?
So, let’s look at a few examples at what happens when the boss doesn’t show up Monday morning. Let’s start off easy with a partnership. What’s easy? Well, if one of the partners dies, in all likelihood the company will keep operating for some period of time without any big changes. But there is a matter that as an employee you might not be attuned to, the fact that the deceased partner’s family needs to be considered in some way for his or her portion of the company. In an ideal world the partners will have executed a buy/sell agreement funded by life insurance. Simply put this is a policy that each partner owns on the other that reflects their financial interest in the business. Upon a death the living partner receives the proceeds from the life insurance and, per the buy/sell, agreement, uses it to buy out the deceased partner’s family.
What happens if there is no buy/sell? In almost all cases someone from the deceased partner’s family could take over for the missing partner. I can see this working in some cases where, say, the partnership was between two husbands. It really was a close friendship business and the wives both knew what their husband’s role was and not just how they did it, but how it needed to be done to succeed. It might work out for the widow to step in and be the new partner.
While it is conceivable that this type of succession could work, it would be a rare case indeed. The chances that a spouse or any other family could actually take over those duties and mesh with the other partner well enough to keep moving forward is slim.
The other options? The living partner could just continue to pay the family of the deceased partner the normal income and bonuses, but in the absence of someone actually doing that job chances are income will drop and that could be a huge drain on the business. The living partner could just refuse to pay but would likely lose a lawsuit that would force him to pay of liquidate the business and split the proceeds.
Are you starting to get how much easier things are when you just wait a couple of weeks and get a business life insurance death benefit check and make things right? Not only does the family get what they deserve, but the company is likely to remain solvent and move ahead without laying anyone off.
In a sole proprietorship succession planning is often a decision made by the family about whether they can continue the business in a profitable manner. This decision is made much easier by simply carrying adequate income replacement life insurance. If life insurance replaces income then the family can choose to keep the business running knowing that even if it takes a while to get back on its’ feet, income will be there.
Bottom line. Whether you are a partner or owner of a small business, or a large company CEO life insurance is a tool to consider to ensure that your death doesn’t shake the company you’ve worked long and hard on, to its’ knees.