Every successful business owner knows how important it is to keep it operational no matter what happens to them or their partners. To prevent any financial distress when you or a key person to the business passes away, you need to have business life insurance.
This cover works like any other life insurance type, only that it’s acquired by the business rather than a person. The aim to take it out is to protect the company, its owner and co-owners, assets, and employees.
In a nutshell, a business life insurance serves the following purposes in a co-owned business:
♦ It enables the remaining co-owners or partners to buy out your shares once you pass on.
♦ It provides the much-needed capital that will allow the remaining partners to continue operations following the loss of a partner.
♦ The policy’s proceeds are given to the deceased’s family to help them keep up with their lifestyle or clear unpaid debts.
How to acquire affordable business life insurance
There are two simple ways in which you can significantly cut down how much money you spend on your life insurance:
♦ Compare quotes from different insurers
♦ Fund a buy-sell agreement using life insurance
We go over the methods below.
Compare business life insurance quotes
If you’re looking to get business life insurance coverage at a budget, the first step is to compare quotes for different carriers. You can do it yourself if you’re sure about what you’re looking. Alternatively, you can use insurance providers’ comparison services such as Caspian for a hassle-free process.
We recommend working with a local insurance expert as they will leverage their experience and knowledge to recommend a cover that meets your specific business needs. The idea is to have options from a wide range of top-class carriers before you can settle on the most affordable and convenient for the needs of your staff and company at large.
Fund a buy-sell agreement using business life insurance
A buy-sell agreement is an agreement that restricts business owners from transferring their shares externally. It dictates that when a partner passes away, the other partners have the right to purchase the deceased’s shares internally.
Put otherwise, a buyout agreement is a legally binding agreement that enables entrepreneurs to know in advance who can buy into the business, as well as how the policy works. It provides a more civilised and diplomatic way of settling company shares, rather than forcing the remaining co-owners into an expensive court process.
Please note that a business co-owner doesn’t have to pass away for this agreement to be implemented. In certain instances, a partner may voluntarily decide to transfer his shares, thus triggering a buyout.
Other causes include involuntary transfers due to factors like bankruptcy, permanent disability, divorce, employment termination. You also have other unforeseeable circumstances, such as constant arguments among shareholders where they don’t see eye-to-eye anymore.
Before we get to the funding part, it’s important to mention that a buy-sell agreement doesn’t need financing to be valid. The remaining owners may mobilize resources internally to buy out the shares of a deceased or discontinued partner. But is it worth it, especially when there are cheaper funding options such as taking out business life insurance?
If you purchase a business life insurance to fund a buy-sell agreement, it can alleviate the financial burden on the business and the remaining owners.
Let’s explain this further; when an owner passes away, proceeds from the life insurance policy go to the specially created Trust. Depending on the agreement, the remaining owners can get a share of the money and use it to purchase the shares of the deceased. In the end, their interests will increase proportionately, while the operations will proceed as usual.
Generally speaking, it’s tough to find a cheap business life insurance plan. If you’re pressed for cash and looking to minimize your costs, the two options we’ve described here offer an excellent place to start. They will help to prevent the business you’ve worked so hard to build from collapsing should anything happen to you or any other vital person.
Do you have any questions that you’d like us to answer concerning protecting your business using insurance? Please share with us in the comments below, and we’ll be happy to help.
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business life insurance