What happens if the owner of your business dies?
I'm the owner of a law firm and I run my own business. I need a specific insurance policy to be tailored to protect my business because I am currently the only lawyer/owner of the business. For many other businesses, they have partners, and one of the issues they face is if one of the partners dies, what happens to their interest in the business? It shows the importance of having a strong business succession plan that lays out what happens next, if something happens to your primary owners.
Key Person Insurance
One way you can protect against this is to have key person insurance. This is a life insurance policy, usually on the life of one of the important owners or partners of a business. The business pays for policy premiums and if something happens to that individual, then the business collects the proceeds, unlike personal life insurance that would be paid to your family members.
Now the question of whether your company needs key person insurance is really going to be individual to you and your company. Many companies could really benefit from having key person insurance. That extra bit of cash to help the business keep going if an owner dies would be essential to keep that legacy intact, protected, and then the next question I often get is, if I need key person insurance, how much do I need?
This entire issue goes back to simply having the right professional team around you. Having an accountant, attorney and insurance agents (which is something people don't always think about), but the right insurance agent will be able to go through the process of getting key person insurance:
- What levels of insurance your business needs, and
- Other types of supplemental insurance that would go with it.
You can keep your head in the sand and hope that nothing happens to the owners of your business. And if nothing happens, then maybe they'll retire and move on and we won't have this issue. But you never know what's going to happen. We've learned a lot over the COVID pandemic, how quickly things can change. And if something happens to one of your owners, and you need to make sure the business can keep going, key person insurance can be a very strong tool in your business's toolbox.
If it's time to look into this further for you and your business, go talk to your insurance agent. And if you don't have one, go find one or ask somebody for a good recommendation and say set up a consultation. An insurance agent can work with you and your business to make sure that if you need key persons insurance, you get it and you get the right amount