Have a Small Business With a Partner? Key-Life Insurance Needs to Be a Top Priority
If you run a small business with one or more partners, what should be your priority? Making sure your operating agreement is set? Your budget? Your business plan? While these are all important, many business partners don't realize that key-life insurance should be at the top of your priority list.
This type of insurance is designed to protect your business in case one of your partners passes away, and it can provide a financial safety net that can keep your business from going under in difficult times.
Here's a look at how key-life insurance works and why it is so important for small businesses.
What is key-life insurance?
Key-life insurance is a life insurance policy that a business purchases on the life of an owner, a top executive, or another critical employee. Key-life insurance provides protection in the event of death, disability, or critical illness of a business partner -- without which your small business could be left vulnerable.
The money from this policy can be used to buy out the deceased partner's share in the business. This way, the surviving partners can continue running it without having to worry about dealing with their late partner's estate or family members contesting ownership rights. In addition, it can also be used to help the business replace lost revenue as they search for a replacement staff member.
Why is it important for small businesses?
For small businesses, key-life insurance can be a lifesaver if one of its owners suddenly passes away. Without this coverage, surviving partners may have to scramble to come up with funds to replace their lost partner's share or the revenue lost in order to keep their company afloat. This could mean taking out loans or selling off assets, which could further jeopardize their financial health. Key-life insurance ensures that surviving partners don't have to worry about these issues and can focus on keeping their business successful instead.
Key-life insurance can provide peace of mind knowing that if something were to happen to you or your partner, the remaining owner would be financially secure and have the resources necessary to sustain operations and cover financial obligations. This type of policy also offers a buy/sell agreement that allows for one partner's shares in the business to be sold or transferred in case of death, disability, or critical illness. Additionally, key-life insurance policies offer tax benefits and can help with succession planning.
How do you get a policy?
The process for obtaining key-life insurance is relatively straightforward. First, you'll need to assess how much coverage will be necessary for your particular situation. This will depend on factors such as how much equity each partner holds in the company, what assets would need to be bought out, or how much revenue needs to be replaced.
Once you've determined this amount, you'll need to shop around for an insurer who provides coverage up to this limit. Finally, you'll need to complete any paperwork required by your chosen insurer and pay any premiums due before you're fully covered by your new policy.
No matter what size or type of business you run with a partner or partners, making sure you are all protected should something happen is paramount. Key-life insurance can provide peace of mind knowing that if something were ever to happen, there would be a financial safety net available. It also allows business owners time and resources needed to grieve properly without having additional stressors added during such a difficult time. Make sure key-life insurance is part of your business protection plan today.
This article was written by David Chang from The Motley Fool and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.
