We all know a person who acts as the "face" of their company. Many times they are the business and without them we'd certainly feel a change in the day to day operations. But what would you do if that person left, became disabled or passed away? If your business relied on them to be financially successful, how would you recover? How long would it take to find a train a replacement? How much revenue loss would occur in that time frame? If you have ever grappled any of these questions, it is probably a good idea to purchase Key Person Insurance.

Key Person coverage uses Life Insurance and/or Disability Insurance, to protect businesses from financial loss should a key employee or owner die or become disabled. The majority of the time, the business pays for the insurance and is the beneficiary of the policy; but sharing the premium payments and benefit with the key person is also acceptable. This enables the company to use the proceeds from the life insurance to pay debts, recruit a replacement, or even close the business if necessary.

For example, Joan owns a small consulting firm and her top consultant was injured in a car accident. She learns that her best person is going to need surgery and be out for 8-12 weeks. Joan now has a back log of clients and no other employees with the knowledge or acumen to independently assist. Had Joan purchased a Key Person Disability policy (or Key Person Life policy with Disability rider), then she could use the benefits paid to hire another consultant, maintain payroll, or any myriad of things to help the business remain solvent while the employee recovers.

Did the example above resonated with you? Are you ready to put the proper controls in place for your business? Then call us today to find out how we can help you establish Key Person Insurance for those critical to your organization.


Life happens, let us help you be prepared.

Most people don’t start a business thinking about how it will end, but you should. Without a clear path of transfer or an exit plan, you could be leaving your employees and the business in limbo. Depending on the type of entity, there are various tax and legal implications if an owner passes away or divorces without preparing the entity. You or your partners, could now be forced into business with people you don’t know, or worse, don’t like.
 
So how can you prevent befalling this fate? Well one of the most important things you can do is draft a buy-sell agreement (BSA). A BSA can assist in the transfer of ownership interests and determine how involuntarily acquired shares/assets can be sold back to the company. Most BSAs are set up using Life Insurance to provide the funds needed for buy outs and buys backs upon the death or disability of an owner.  
 
For example, Tom, a 56 year old man owns a law firm with his partner John, 62. John suffers a heart attack and passes away, leaving his portion of the business to Sally, his wife of 40 years. Sally unfortunately is not an attorney and can provide no day to day value to the business and is not legally permitted to assist with caseloads as she is not licensed. Now Tom is in business with Sally, mourning his partner, and feeling overwhelmed by it all. Well, had Tom and John set up a BSA, the life insurance purchased by the firm on each of the owners would have provided the funds via the death benefit, to buy back Sally’s inherited ownership. This would give Tom full ownership and the ability to continue the business as is, or offer ownership stakes to a trusted and vetted new partner. It also allows Sally a cash buyout for John's final expenses and supplemental income without having to worry about whether partial payouts from the business can support her for the remainder of her life.
 
Did the example above resonated with you? Are you ready to put the proper controls/exit plan in place for your business? Then call us today to find out how we can help you establish a BSA for your organization funded by life insurance.

Life happens, let us help you be prepared.


Image from Kierman Law 2021