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Do you own a business? If so, you need to consider what would happen if one of your most important executives, one of your partners or an owner died suddenly. Although you may not want to think of such a scenario, it’s wise to prepare for the unexpected.
Key person insurance protects any surviving owners of your business. That’s why you should spend some time considering how the death of a key member of your company would affect the daily operations of your business. Would your business be able to survive financially if you had to replace the expertise and knowledge of one of your key people? Replace An Experienced Key Person If one of the individuals specified in your key person insurance policy dies, your company will receive money to cover any related expenses. You can use this cash to hire someone else as a replacement—a process which can often be very costly and time-consuming. Business owners may contribute their invaluable expertise, even if they don’t receive a regular salary. This is especially true when you first start your company. Another individual will not normally be interested in replacing a key person in your company unless they receive adequate financial compensation. Purchasing a key person insurance policy will enable the surviving owners to take the time to hire another experienced individual to help run the company. Include a Buy Sell Agreement Many business owners don’t spend any time thinking about issues concerning inheritance if one of the owners dies. Therefore, you should always ensure you have a buy sell agreement before you decide to start a company with anyone else. The agreement should state exactly what will happen to the ownership interest of each individual if he/she dies. You should specify that your company will buy all of the deceased owner’s shares. If you fail to do so, the heirs of that individual may become part owners of your business. A key person insurance policy will help you prevent this from happening. Just make sure to specify in the contract how the funds will be used if an insured individual dies. This can prevent a lot of frustration and problems later on. Prepare for the Unexpected After you purchase a key person insurance policy, you should periodically review the document. You want to ensure that you have adequate insurance coverage to protect your business. It’s very important to prepare for the unexpected. If an important member of your company dies unexpectedly, you will find it much easier to manage financially with key person insurance coverage. |
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