In small businesses, the death or disability of a key employee is difficult to overcome. His or her share in the business normally transfers to heirs. This can cause problems for businesses that may not want a new partner or cannot afford to buy out heirs.
To avoid this problem, many business owners enter into a buy-sell agreement. This “set price” agreement means that upon a business partner’s death or disability, the business is pre-valued, using life insurance as the payment guarantee. Here are five reasons why you should consider this coverage.
- Upon your partner’s death, heirs do not have the expertise to replace your partner. You may find yourself saddled with a partner that is a liability rather than an asset.
- Financing is the lifeblood of almost any business. Banks may insist on this coverage for partnerships or large companies.
- This coverage offers financial security to heirs or those dependent on a key person.
- You and your partner’s personalities may be the driving force behind the business.
- Key persons may be others in your organization, not just partners. Consider how long it would take to replace a long-term employee responsible for training and motivating your sales team.
Determining how much coverage to buy and who name as beneficiary depends your company’s revenue, how much the key person contributes and the type of life insurance. If your partner or a key person dies or is disabled, you should be prepared. Key person coverage can help. Call us today to discuss your business insurance needs.