Steven Wevodau - Life Insurance

Key person insurance is an important protection for any business to have in place. Taking out key person life insurance helps protect the surviving owners and leaders of the business. When going into business, it’s important to think about how the passing of a key member of the company’s management team will impact not only the day-to-day operations of the business, but also the financial implications of having to replace that person’s talents and expertise.

Replacing Expertise
When you have a key person insurance policy in place, the business will receive an infusion of cash in the event that a covered individual dies. These funds can be used to hire someone to replace the key person. This can be an important consideration, particularly if the person who passed away was one of the owners.

Many times, business owners contribute a great deal of expertise without drawing full salaries, particularly in the early days of operations. Someone who doesn’t have an ownership interest in the company isn’t going to be willing to step into that person’s shoes without fair compensation. Having a sufficient quantity of insurance in place can ensure the surviving owners’ ability to hire an individual with the right expertise to participate in the business.

Buy Sell Agreements
Another thing that many people fail to consider when going into business with other people is the inheritance implications that could arise after the death of one of the co-owners. Before you go into business with another person, it’s important to put a buy sell agreement in place that specifies what will happen to each person’s ownership interest upon his or her passing.

If you don’t want to have to share ownership of your business with the heirs of your partners, it’s important to specify that the company will purchase all outstanding shares belonging to an owner upon passing. The best way to make sure funds are available to do this is to take out a key person insurance policy. Be sure to specify in the terms of the agreement exactly how the funds will be used in the event of the covered individual’s death so that no unanswerable questions are likely to arise.

Planning for the Future
It’s a good idea to periodically conduct a comprehensive review of your company’s business insurance coverage. It’s vital to be certain that your coverage includes a sufficient amount of key person insurance. Making sure that your business is protected with sufficient key person insurance is an important part of preparing for the future. Make sure that you don’t find yourself facing an unmanageable situation following the passing of a key member of your company’s leadership team.