Business Owners Life Insurance
When you run a partnership, losing a business owner can make a big impact on the day-to-day operations of the business. In partnerships, running a business without a key member of the team can result in financial difficulty. Not only is losing a partner often a personal loss, the partnership itself loses a key asset. Business owners life insurance can be the answer to help the business continue to run profitably.
One of the main types of business owners life insurance is partnership protection. This type of policy is designed for partnerships and limited liability partnerships to protect the business against the impact of losing a business owner. Business owners life insurance can provide the financial means to get through a transaction period and counteract any losses in profits or sales. Losing a business owner can provide a big impact on the business financially. Partnership protection essentially provides a safety net for the business to help protect against this impact.
When there is no legal partnership agreement in place, the death of a business partner can result in the partnership being dissolved. The proceeds fall into the estate, which the family normally receive. Business loans and debts may be called in and required to be paid from the proceeds. In addition to this, there may be contractual obligations that need to be fulfilled or compensated. If your partner wants to keep the business, this may also involve renegotiating and changing names on contracts and terms which can be costly. If there is no financial support to do this, banks and lenders could change terms or cancel funding.
Limited liability partnerships
With limited liability partnerships, the business itself or the remaining partners may want to purchase the share that falls into the estate. Business owners life insurance can inject a lump sum into the business in order to buy back the share.
The business may also need extra funds to change contracts or pay off debts. The company may also need to compensate for any loss of sales experienced during this time.
Getting business owners life insurance
In a lot of ways, getting life insurance for business partners can be similar to a personal life insurance policy. However, instead of the family being the beneficiaries of the policy, your business partners are. Alternatively, in the case of a limited liability partnership, life insurance for business partners can be used to inject cash straight into the company itself.
Setting up life insurance for business partners can also help to protect your family too. In most cases, the family would rather receive the money for the business share rather than the responsibility of running the business. With life cover, your fellow business partners receive the money to be able to buy back the share. As a result, your family can be financially supported after you pass away. With the right agreements in place, the process is quick and effective for all parties involved.
What is a buy-sell agreement?
With partnership protection, a legal contract between the business owners may be integral to business strategy. It details the circumstances surrounding the death or serious illness of the business owner. When the life insurance policy is paid out to the remaining partners in order to buy back the share, a buy-sell agreement can be put in place.
This ensures that the business agrees to buy the share, in addition to the family agreeing to sell. It also ensures the process is quick and efficient at avoiding complications and disagreements.
The importance of succession planning
Without a succession plan in place, the business could fall to a spouse or children who have little or no interest in the business. Without business owners life insurance it may be difficult to get funding in order to purchase the share. If the family still wish to sell, the business share could go to a competitor.
It is harder to borrow money after losing a business partner due to uncertainty. With life insurance for business partners, term life insurance may be the best option. The term of the insurance can be anywhere from around 2-35 years depending on when you plan to close the business or retire.
Own life insurance for business partners
In a partnership, each business partner can purchase a life insurance policy on their own life. They would name their business partners as the beneficiaries. They can then use the money to buy back the share. In the case of limited liability partnerships, the insured can put the business itself as a beneficiary instead.
The other option is to take out a life insurance policy on the life of your business partner. In this case, you name yourself as a beneficiary and your partners do the same. It is important to be aware that the price will differ based on the individual’s age and lifestyle. Therefore, you need to be willing to pay the premiums for that individual.
How much life insurance to get
When you’re investing in business owners life insurance, it is important not to underestimate the potential costs. Losing a business partner can have a serious impact financially for the company. You need to be prepared for your business revenue to take a hit. Money isn’t simply needed to buy the share, but also to keep the business running during a period of uncertainty. Weighing up the costs of losing a partner, can be integral in protecting your business. Life insurance term cover can be relatively inexpensive and can help your business to stay afloat.