That’s an easy one. If you can think of a person in the company, whether that is you, your partner, a long time key employee or board members that make the whole thing work, whose death would cause a financial stumbling block, there is a need for business life insurance.
In addition, if your company runs any significant amount of ongoing debt, business life insurance on the principals of the company is a must. Business life insurance is there for many of the same purposes we all carry personal life insurance, the difference being that if not handled properly it’s not just your family that can be affected, but the family of your partner(s) and possibly the very viability of the company and the people it employs.
Just a brief overview of a few policies that business owners should consider. Buy/sell agreements are a real must when it comes to businesses where two or more people own the business. Funded by life insurance on each of the owners, it allows the company, upon the death of an owner. to buy out a family’s interest in the business. In most states if an agreement is not in place, the surviving owner either has to come up with the money to buy the family out or, if the family wishes, they can replace the deceased partner with someone of their choosing. From a practical standpoint the surviving partner really doesn’t want to be in a position of having to accept a new partner whether they want to or not. Their options are left open through a fully funded buy/sell agreement.
Key person insurance is often overlooked, but is vital to company continuity upon the death of a key person. That person could be a plant manager, a business manager or an office manager. It is that these people have become so key to the everyday running of the company that creates the need for a key person life insurance policy. With this type of policy, the company becomes the beneficiary and can use the money to overcome the obstacles that pop up due to their loss. It could be that these are the people who kept the customer base loyal. It could be that this was the person that helped the employee base be so productive.
An influx of cash upon the death of a key person in your company can provide incentive money to hire the right replacement person in a quicker time frame. It might provide smaller per employee bonuses to keep the team together and working hard during the transition. There really are no restrictions on the creative use of the money. A business owner might even use the money to fund a retreat for key customers to get their input and the qualities a replacement needs to bring to the table.
If the death of a partner will have an impact on the productivity of the company, the owners should consider carrying life insurance to pay off any debt the company has. The extra slack created by having the debt paid off could be just what it takes to ensure the company isn’t strapped during the adjustment period.
Bottom line. The death of an owner or key employee in a company can wreak havoc with the very ability of the company to survive. A well considered business life insurance policy can ensure a company will have the cash flow to deal with any number of challenges.