Do Companies Need Buy-Sell and Key Man Business Life Insurance – LIFESTYLE BY PS icon

Do Companies Need Buy-Sell and Key Man Business Life Insurance

When you start a business, you need to have a proper plan that will help you sustain your company in the event of a loss to those who play a vital role in its success.

No one would want something bad to happen to their business partner, but no one knows about the future either. Fortunately, two insurance policies can protect your business from the impact of the loss of a primary player due to death or another trauma-related incident. Just like it is important to compare life insurance quotes before buying one, it is equally important to compare insurances policies for your business too.

Buy-Sell Agreements and Key Man Insurance ensure that you are financially prepared to allow the company to continue working even in the event of the worst situation possible. You can also visit the web and look for other types of business life insurance to ensure that your business is safe.

Buy-Sell Agreements differ from Key Man insurance. Both policies are unique to each company’s needs. Some businesses may require Key Man, while others need Buy-Sell Agreements. This article will guide you on why companies need Buy-Sell Agreements and Key Man business life insurance.

  • About Key Man Insurance. Key Man insurance aims at protecting the business if a primary employee dies prematurely. In the event of the sudden death of a critical member of the team, the company may go through a tough time. The organization may lose some clients, it may become challenging to obtain credit, or some employees may start feeling like the company will fail, and they will lose their jobs. If the business had insured the deceased under the Key Man policy, the death benefit would provide the funds needed to allow the organization to continue with its operations. The insurance company pays directly to the company, and the business can use the money as it sees fit.

  • About the Buy-Sell Agreement. While Key Man covers the daily operations of a business, the Buy-Sell Agreement deals with ownership in the event of one of several owners pass away. If you start a company with one or more individuals, that is a significant commitment. While you may feel comfortable working with your partners, you may not feel the same when it comes to their heirs. The Buy-Sell Agreement contains the terms and conditions for the sale of the deceased partner’s shares in the event of their death. A lawyer drafts the Buy-Sell Agreement, and it includes all the stipulations that will enable the smooth transition of ownership in case one of the owners dies prematurely. Without such a plan, disputes may erupt between the deceased partner’s heirs and the surviving partners over the ownership and operations of the business. The disagreement can involve the value of the company, or whether to sell or buy shares. Such disputes may harm the activities of the business and can lead to severe consequences.

  • Life Insurance Planning. Key Man Insurance and Buy-Sell Agreements in any business are an excellent way to protect the interests of both the company and the heirs of each business partner. However, the company should consider several factors when determining the value of coverage to include in their business insurance planning. A company should look at the cost of coverage, the impact of losing a partner, and the cost that comes with enacting the terms of any business life insurance policy.

  • Companies that Need both Policies. Some companies may not have the liquid cash to buy out a partner’s family members in case he/she dies prematurely. As such, the Buy-Sell Agreement often includes the provisions of Key Man Insurance that the business should have at all times. With both policies, a company ensures that it does not risk either losing its shares or going into its accounts to finance a payout.

  • Companies that do not Need Either One. If a company has adequate liquid assets such that it is self-insured, it can avoid the purchase of either Key Man Insurance or a Buy-Sell policy. However, the business must have set aside the funds before the occurrence of the premature death of a partner.

  • Key Man and Buy-Sell insurance policies do not extend beyond the period of your partner’s usefulness to the company. These business life insurance policies aim to compensate for any relevant losses and allow business continuity.

    Every business has its unique way of calculating risk and methods of passing on leadership. Addressing these concerns before any problem occurs will help in maintaining the health and success of the company, even after the premature death of a key player.