The Business Owner's Guide to Key Person & Buy-Sell Insurance
Key Person Insurance protects a business against the financial loss of losing a critical owner or employee, funding the cost of finding and training a replacement. A Buy-Sell Agreement, funded by life insurance, lets surviving owners buy out a deceased partner's share at a pre-agreed price instead of scrambling for cash or ending up in business with a grieving spouse. Most owners have never had either explained to them.
If you own a business, your personal life insurance needs are only half the picture. Most owners have never had two specific tools explained to them, and both can be the difference between a business surviving a tragedy or closing because of one.
Key Person Insurance
If you (or a critical partner/employee) passed away unexpectedly, would the business survive the transition? Key person insurance pays out directly to the business, giving it cash to cover lost revenue, find and train a replacement, or simply keep the lights on during a difficult transition.
Buy-Sell Agreement Funding
If you have business partners, a buy-sell agreement determines what happens to a deceased owner's share, usually that the remaining partners buy it out. The problem: most buy-sell agreements exist on paper with no actual funding behind them. Life insurance is the most common way to fund that buyout without draining business cash or forcing a fire sale.
Worth checking: If you have a buy-sell agreement already, ask yourself honestly: is there an actual funding mechanism behind it, or just a promise on paper?
Where to start
- Identify who in your business is truly “key” to its survival
- Get a rough valuation of what it would cost to replace that person
- Review any existing buy-sell agreement for actual funding
- Consider both personal AND business coverage: they solve different problems
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