Having a well-structured business assurance plan will ensure that the business will remain operational in case of an unforeseen death of the owner or key person.
A key person is an individual who the business heavily depends on for its success. If a key person were to suddenly die or become disabled, it would result in serve financial loss for the business.
A business could take out a key man policy. This would protect the business in case of the sudden death or disability of a key person.
A buy-and-sell agreement is an agreement between partners, shareholders, or members that provides for business continuity in the case one of the partners, shareholders or members passes away or becomes disabled.
The agreement provides the necessary cash needed by the remaining partner, shareholders or members to purchase the deceased partner, shareholder or member’s interest. A buy and sell agreement is funded by life insurance.
The advantages of having a buy and sell agreement:
Contingent liability insurance is a policy that the business takes out on the life of an individual who stands surety for the debts of the business.
Start-up costs for a business can be high and the owner may need to take out a loan in his own personal capacity. When taking out the loan the owner will stand surety for it. If due to unforeseen circumstances the owner dies before the loan has been settled his estate will be held liable for the outstanding debt and this will negatively impact the owner’s heirs.
In order to safe-guard the owner’s estate he would need to take out a contingent liability insurance. By having the contingent liability insurance, it ensures that the outstanding loan amount will be fully repaid in case the owner passes away.