Business Life Insurance  

 Key-Person - A life insurance policy can be used to protect a business from the loss of income and profits caused by the death of a key employee.

What is Key-Person Life Insurance? Maybe your business is operated primarily by one person or maybe your company is run by a small team of executives whose expertise is the lifeline of your business. The premature death of a key person could signal the premature death of the business. With a Key-Person Life Insurance Policy, a business can increase the chances of survival if it were to lose a key member of the organization.

How do you set up a Key-Person Life Insurance Policy? The first factor to consider in setting up a Key-Person Life Insurance Policy is to determine how much death benefit is needed. The minimum usually considered is one times the key persons annual income, but other factors need to be considered. What if the business relationships of this person drive half of the company's revenues? How difficult and costly will finding a replacement be? Are there business debts that would place financial hardship on the company?

Once the death benefit amount has been determined, the business would purchase the policy on the key person. The key person would be the insured and the business would be the owner, payor and beneficiary of the policy. Permanent or term life insurance can be used as a key person policy depending on the needs of the business and how much they are willing to spend.

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But/Sell Agreement (Business Continuation) - Life insurance can be used to fund a buy/sell agreement or stock redemption plan to determine enable a partner or group of employees to buy the business interest of a deceased partner.

What is a Buy/Sell Agreement? A Buy/Sell Agreement is a contractual agreement that provides for the continuation of a business in the event of the death or disability of a sole proprietor, partner or shareholder. An agreement may stipulate that, upon the death of a shareholder or partner of a company, the company or other partners buy back the deceased's interest in the business. Life insurance is commonly used to fund buy/sell agreements because it provides both liquidity and tax advantages in funding the transaction.

The following are important reasons to use a funded buy/sell agreement:

Life insurance provides a simple way to administer a funding vehicle for the purchase of the deceased's ownership according to the terms of the buy/sell agreement. The business also protects itself from any future drain on working capital, damage to its credit position and/or the legal or financial problems that could arise out of the company's inability to fund the buy/sell agreement with its own income

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