LIFE INSURANCE FOR SMALL BUSINESS OWNERS
In the fast-paced life of co-owning your business, you know that anything can happen. You also know that no matter what happens, you must figure out how to keep the business going. This is especially true if you or one of your co-owners passes away. Losing a business partner is a personal loss, but it also poses critical questions about the ownership of the business.
First, create a business succession plan to determine what will happen to your business partner’s ownership interest if they pass away. This may be determined by your operating agreement, bylaws, or by default state law. You may also have a Buy-Sell Agreement, an agreement between business owners that details how the business ownership will be transferred if a partner dies, becomes disabled, or leaves the business. Without a program, your business partner’s ownership interest may be passed on to your partner’s heirs. A Buy-Sell Agreement can help clarify how your business partner’s ownership interest is transferred after they pass away.
Second, the business should have life insurance for all the company’s key partners. A life insurance payout can provide much-needed cash to manage the company through a rough period. That payout can also help you or the business purchase your late partner’s ownership interest in the business. An insurance broker can help you purchase insurance. I always use Joe Cunningham of Northeast Brokerage to get my clients the correct life insurance. Consider whether each partner will purchase their life insurance or if the business will purchase life insurance for each partner separately.
The most important thing is to have a plan in case of a sudden loss. A plan can allow the business to carry forward as you and your partners envisioned. I can help you and your business create a business succession plan and put the documents in place to make that happen.
(co-authored by Rohan Vakil)